Yahoo! Inc. (YHOO): Proxy Score 46

Yahoo! Inc. (YHOO), one of the stocks in my portfolio, is engaged in providing Internet search, communication and digital content. Their annual meeting is coming up on 6/24/2015. ProxyDemocracy.org had the vote of three funds when I checked and voted on 6/15/2015. I voted with the board 46% of the time and assigned YHOO a proxy score of 46.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the YHOO 2015 proxy in order to enhance corporate governance and long-term value.

YHOO: ISS Rating

From Yahoo! Finance: Yahoo! Inc.’s ISS Governance QuickScore as of Jun 1, 2015 is 2. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 5; Compensation: 2. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights, and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus… Shareholder Rights. 

YHOO: Compensation

YHOO Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Marissa A. Mayer at about $42.1M in 2014.  I’m using Yahoo! Finance to determine market cap ($38B) and Wikipedia’s rule of thumb regarding classification.

YHOO is a large-cap company.  According to Equilar (page 6), the median CEO compensation at small-cap corporations was $10.1 million in 2013, so YHOO’s pay is way above that number. YHOO shares out-performed the NASDAQ over the most recent one, two and five year periods but underperformed during the most recent ten year period. However, out-performance has not been proportionate to pay.

The MSCI GMIAnalyst report I reviewed gave YHOO an overall grade of ‘C.’ According to the report:

•  Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
• The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
• The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.

With far above median relative pay and the above issues, I voted against the pay package.

YHOO: Board of Directors and Board Proposals

Generally, when I vote against the pay package I also vote against the compensation committee, since they recommended the pay package to the full board: Jane E. Shaw (Chair) and Maynard Webb. I also voted against H. Lee Scott, Jr. and Susan M. James for failing to nominate a minority director.

YHOO: Accounting

I voted in favor of ratifying YHOO’s auditor, since less than 25 percent of total audit fees paid appear attributable to non-audit work.

Shareholder Proposals at YHOO

I voted in favor of John Harrington’s proposal to establish a board committee on human rights. Yes, YHOO has taken several positive steps but a board level committee would provide greater oversight. I also voted in favor of John Chevedden’s proposal to allow shareholders to act by written consent, a right that might be quite useful in an emergency.

CorpGov Recommendations for YHOO – Votes Against Board Position in Bold

Governance Issues at YHOO

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

• YAHOO
• Special meetings can only be called by shareholders holding not less than 25% of the voting power.

YHOO Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Shareholders interested in submitting a proposal for inclusion in the proxy materials we distribute for the 2016 annual meeting of shareholders may do so by following the procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). To be eligible for inclusion, shareholder proposals must be received by us no later than January 7, 2016 and must comply with the Company’s Bylaws and Rule 14a-8 under the Exchange Act regarding the inclusion of shareholder proposals in company-sponsored proxy materials. If we change the date of the 2016 annual meeting of shareholders by more than 30 days from the anniversary of this year’s meeting, shareholder proposals must be received a reasonable time before we begin to print and mail our proxy materials for the 2016 annual meeting of shareholders. Proposals should be sent to Yahoo’s Corporate Secretary at 701 First Avenue, Sunnyvale, California 94089.

Warnings

Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.