Guidewire Software, Inc. provides software products for property and casualty (P&C) insurers. It offers a technology platform supports core insurance operations, including underwriting and policy administration, claim management, and billing. Guidewire is one of the stocks in my portfolio. Their annual meeting is coming up on December 3, 2015. ProxyDemocracy.org had collected the votes of two funds when I checked. I voted with the Board’s recommendations 40% of the time. View Proxy Statement.
Guidewire Software: ISS Rating
From Yahoo! Finance: Guidewire Software, Inc.’s ISS Governance QuickScore as of Nov 1, 2015 is 6. The pillar scores are Audit: 2; Board: 3; Shareholder Rights: 8; Compensation: 4. Brought to us 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.
Guidewire Software: Compensation
Guidewire’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Marcus Ryu at $5.9M. I’m using Yahoo! Finance to determine market cap ($4.3B) and Wikipedia’s rule of thumb regarding classification. Guidewire is a mid-cap company. According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.9 million in 2013, so pay is well above that. Guidewire shares outperformed the S & P 500 over the most recent one, two, and five year time periods.
The MSCI GMIAnalyst report I reviewed gave Guidewire 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 annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
- 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 may weaken the ability of equity awards to align executives’ interests with long-term value creation.
Given these issues and pay that was substantially above average, I voted against the plan and the directors on the compensation committee: Guy Dubois, Chair, Andrew Brown, and Paul Lavin. Unfortunately, because of Guideware Software’s classified board, I could only vote against Lavin.
Guidewire Software: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion or is engaged in poor accounting practices, so voted to confirm.
Guidewire Software: Board Proposals
I voted against the pay plan and the one director on the compensation committee that is on the proxy. I am also concerned that Guideware Software has no women on its board. That is unacceptable. Therefore, I voted against Peter Gassner, since he is on the nominating committee.
Guidewire Software: Shareholder Proposals
There were none.
I also checked Proxy Insight. Among others, they report that the Teacher Retirement System of Texas and Colorado PERA voted entirely as recommended by the Guideware Software board.
|1.1||Elect Director Peter Gassner||Withhold||Withhold|
|1.2||Elect Director Paul Lavin||Withhold||Withhold|
|1.3||Elect Director Marcus S. Ryu||For||Withhold|
|2||Ratify KPMG LLP as Auditors||For||For|
|3||Advisory Vote to Ratify Named Executive Officers’ Compensation||Against||For|
Guidewire Software: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners; almost too many to list:
- Classified board with staggered terms.
- Plurality vote standard to elect directors with no resignation policy.
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to amend certain charter provisions.
Guidewire Software: Mark Your Calendar
To be included in our proxy statement for the 2016 annual meeting, stockholder proposals must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and be received by our Secretary at our principal executive offices no later than July 2, 2016, which is one hundred twenty (120) calendar days before the one-year anniversary of the date on which we first released this proxy statement to stockholders in connection with this year’s annual meeting.
[The] Secretary [can be contacted] at Guidewire Software, Inc., 1001 E. Hillsdale Blvd., Suite 800, Foster City, CA 94404.
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.