Ocata Therapeutics Inc (NASD:OCAT), formerly Advanced Cell Technology, Inc. is a promising biotechnology company engaged in the development and commercialization of human pluripotent stem cell technology in the field of regenerative medicine. The company is one of the stocks in my portfolio, purchased about a year ago. Their next annual meeting is July 22, 2015. ProxyDemocracy.org had nothing on the company when I checked and voted on 7/16/2015. I voted with the Board’s recommendations 37.5% of the time and assigned them a proxy score of 37.5.
View Proxy Statement. Would it bust their budget to add a hyperlinked table of contents? Read Warnings below. What follows are my recommendations on how to vote the Ocata Therapeutics proxy in order to enhance corporate governance and long-term value.
Ocata Therapeutics: ISS Rating
From Yahoo! Finance: Again, no rating from ISS. Too new, too small to be rated I presume. I hope we get something next year.
Ocata Therapeutics: Compensation
Ocata Therapeutics’s Summary Compensation Table (page 25) shows the highest paid named executive officer (NEO) was CEO Paul K. Wotton, at about $4.3M. I’m using Yahoo! Finance to determine market cap ($209M) and Wikipedia’s rule of thumb regarding classification. Ocata Therapeutics is a micro-cap company. According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.7 million in 2012, so Ocata Therapeutics’s pay is substantially above that. Ocata Therapeutics shares substantially underperformed the NASDAQ over the most recent one year periods.
The GMIAnalyst report I reviewed included the following:
Ocata Therapeutics Inc is currently rated as having Very Aggressive Accounting & Governance Risk (AGR). This places them in the 8th percentile among all companies in North America, indicating higher accounting and governance risk than 92% of companies.
Because pay was substantially above median and Ocata Therapeutics shares substantially underperformed the NASDAQ I voted against stock incentive plan and all members of the compensation committee: Alan C. Shapiro (Chairman), Gregory D. Perry, Zohar Loshitzer and Michael Heffernan.
Ocata Therapeutics: Accounting
Despite the company amending filings and the very aggressive accounting, I voted to ratify the the auditor.
Ocata Therapeutics: Board Proposals
Ocata Therapeutics: Shareholder Proposals
None this year.
Ocata Therapeutics: CorpGov Recommendations Below – Votes Against Board Position in Bold
|Proposal(s)||Recommendations of the Board of Directors||Vote Options|
| For All Nominees|
Withhold All Nominees
For All Except Selected Below
|2.||TO APPROVE THE FIRST AMENDMENT TO THE OCATA THERAPEUTICS, INC. 2014 STOCK OPTION AND INCENTIVE PLAN TO, AMONG OTHER THINGS, INCREASE THE NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER BY 3,750,000 SHARES.|
|For Against Abstain|
|3.||TO RATIFY THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2015.|
|For Against Abstain|
Ocata Therapeutics: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners. Again, because of its newness and small size, Ocata Therapeutics is not included in their database regarding takeover defenses.
Ocata Therapeutics: Mark your Calendar
Proposals by any stockholder intended to be presented at the next Annual Meeting of Stockholders must be received by the Company for inclusion in material relating to such meeting not later than April 15, 2016.
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 5 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 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.
I too have Ocata in my portfolio. I voted for all of the proxy items.
I thought I’d highlight some distinctions that you did not make in your points above. 1) a number of items in the CEO’s salary are first year one time items. His annual salary is, according to the very report you linked to, actually $575,000 and his annual cash bonus, is made based upon the recommendation of an outside consulting firm that the board of Ocata hired, is 55% of his base salary. Dr. Wotton was hired away from another company, where he was quite successful, and was making approximately $2 million. Ocata had a great need to hire an CEO who had the chops to advance the company and move it forward. I’m not sure that going “cheap” would have helped, in the fashion that you suggest. And, in fact, Dr. Wotton appars to have, if you really go and look at the record, taken 1/2 of the salary he had previously. A good chunk of the number you quote are one time stock grants and options that he gets initially, and a relocation reimbursement of up to 50,000.
I think it’s not quite fair to characterize his salary as you have in this write-up, and then to have suggested that the company is “not performing” because of the salary. Rather, the issues of stock performance for start-up biotechs revolve around valuation, and the likelihood of ever becoming cash positive. Ocata has very successful trials and has successfully uplisted to NASDAQ and tapped institutional investment from major firms, due to the addition of very solid new corporate officers. I think we’ll have to agree to disagree as investors.
Thanks for the analysis however, and I’m interested that such a noted person in corporate governance has invested in this tiny company. I think that’s a good thing, though I do think start-ups and share allocations are complex, and if a similar analysis were performed on internet start-ups, I’d expect many would not pass your standards. Good luck in your efforts to keep corporations clean and honest. That’s certainly an admirable endeavor.
Good points. As I say, I have very little analysis from the usual sources on Ocata and am hoping for more in the future. Ocata has certainly assembled a what appears to be a good, well qualified team and I’m in it for the long-term. My initial assessment means very little at this point. Thanks for the thoughtful comments. I look forward to more.