Petmed Express Inc (NASD:PETS), a promising pet pharmacy doing business as 1-800-PetMeds, is one of the stocks in my portfolio added earlier this year. Their next annual meeting is June 27, 2014. ProxyDemocracy.org had collected the votes of one fund when I checked and voted on 7/20/2014. I voted with the Board’s recommendations 78% of the time and assigned them a proxy score of 78. 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 MDVN proxy in order to enhance corporate governance and long-term value.
Petmed Express: ISS Rating
From Yahoo! Finance: PetMed Express, Inc.’s ISS Governance QuickScore as of Jul 1, 2015 is 4. The pillar scores are Audit: 2; Board: 7; Shareholder Rights: 3; Compensation: 5. 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: Board and Compensation.
Petmed Express: Compensation
Petmed Express’ Summary Compensation Table (page 28) shows the highest paid named executive officer (NEO) was CEO Menderes Akdag at about $772,000. I’m using Yahoo! Finance to determine market cap ($347M) and Wikipedia’s rule of thumb regarding classification. PetMed Express is a small-cap company. According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.7 million in 2012, so PetMed Express’ pay is below that. PetMed Express shares outperformed the NASDAQ over the most recent one year period but underperformed for the most recent two, five and ten year periods.
The GMIAnalyst report I reviewed gave PetMed Express an overall grade of ‘B.’ However, 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.
- A decline has occurred in the CEO’s equity holdings in the company over last year. Diminished executive exposure to company stock may work to reduce the alignment between the CEO’s interests and those of shareholders.
- The company’s failure to establish and disclose specific standards regarding minimum equity retention standards for its CEO and directors may weaken the ability of equity awards to align executives’ interests with long-term value creation.
Because pay was substantially below median and despite the problems noted by GMIAnalyst, I voted in favor of the pay package.
Petmed Express: Accounting
I voted to ratify the PetMed Express auditor, being unaware of any potential conflicts of interest.
Petmed Express: Board Proposals
I voted against the Board’s proposals to award specified restricted stock. Although I haven’t substantively analyzed the plans in relation to outstanding stock, the amount appear high to me. There is still time before the meeting to convince me otherwise if I see reasonable analysis.
Petmed Express: Shareholder Proposals
None this year.
Petmed Express: CorpGov Recommendations Below – Votes Against Board Position in Bold
|1.1||Elect Director Menderes Akdag||For|
|1.2||Elect Director Frank J. Formica||For|
|1.3||Elect Director Gian M. Fulgoni||For|
|1.4||Elect Director Ronald J. Korn||For|
|1.5||Elect Director Robert C. Schweitzer||For|
|2||Advisory Vote to Ratify Named Executive Officers’ Compensation||For|
|3||Ratify McGladrey LLP as Auditors||For|
|4||Approve Restricted Stock Plan||Against|
|5||Approve Non-Employee Director Restricted Stock Plan||Against|
Petmed Express: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- Supermajority vote requirement (66.67%) to amend certain bylaw provisions.
Petmed Express: Mark your Calendar
Proposals that stockholders wish to be included in next year’s proxy statement for the annual meeting of stockholders to be held in 2016 must be received at the Company’s principal place of business at 1441 S.W. 29th Avenue, Pompano Beach, FL 33069, addressed to the Corporate Secretary’s attention, no later than February 12, 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.