Yelp Inc. ($YELP) operates a platform that connects people with local businesses primarily in the United States. Yelp is one of the stocks in my portfolio. Their annual meeting is coming up on April 13, 2016 and I have a lot of voting recommendations to make ProxyDemocracy.org had collected the votes of one fund when I checked. Yes, I’m a Yelp critic, voting AGAINST pay plan, compensation committee and omnibus stock plan, voting with the Board’s recommendations 33% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Yelp Inc: ISS Rating
From Yahoo! Finance: Yelp Inc.’s ISS Governance QuickScore as of Mar 1, 2016 is 10. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 10; Compensation: 10. 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 and Compensation.
Yelp Inc: Compensation
Yelp’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chief Revenue Officer Jed Nachman at $3.2M. I’m using Yahoo! Finance to determine market cap ($1.6B) and Wikipedia’s rule of thumb regarding classification. Yelp is a small-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at small-cap corporations was $2.7 million in 2014, so pay is above that amount. Yelp shares underperformed the S&P 500 over the most recent one, two, and five year time periods.
The MSCI GMIAnalyst report I reviewed gave Yelp an overall grade of ‘C.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination allowing 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, essential for investors to assess the rigor of incentive programs.
- 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures Yelp’s wealth creation in comparison to other widely held issuers. “Needs attention” appears to be as low as they go. That’s the score they assigned to Yelp Inc. On the actual compensation advisory vote, Egan-Jones concludes:
After taking into account both the quantitative and qualitative measures outlined above, we believe that shareholders cannot support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote “AGAINST” this Proposal.
Because of the issues noted above, including above median pay and underperformance, I would have voted against the pay plan (if given the opportunity) and compensation committee: Peter Fenton, Chair, and Fred Anderson.
Yelp Inc: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.
Yelp Inc: Board Proposals
As stated above, I voted against members of the compensation committee. Egan-Jones Proxy Services includes the following comment in its more extensive analysis regarding election of directors:
There is a single slate of nominees, the nominees appear qualified, however, the Company earns a compensation score of “Needs Attention”, and as such, we recommend that clients “WITHHOLD” votes from the members of the Compensation Committee, namely Fred D. Anderson, Jr. and Peter Fenton. Egan-Jones believes that the Compensation Committee should be held accountable for such a poor rating and should ensure that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.
I also voted against amending the omnibus stock plan. Although I am very much in favor of substantive employee ownership at Yelp and incentivizing all employees, this plan is too dilutive. Egan-Jones Proxy Services‘ analysis includes the following conclusion:
We note however, after taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined above, we believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future. Therefore, we recommend a vote “AGAINST” this Proposal.
Calvert writes: vote AGAINST this proposal is warranted due to the following key factors: “The plan’s dilution exceeds 10 percent; NSOs offered at less than FMV; The plan permits repricing and/or exchange of grants without shareholder approval; The plan permits cash buyout of awards without shareholder approval; Plan cost is excessive;- Estimated duration of available and proposed shares exceeds six years; The plan permits liberal recycling of shares; and The plan allows broad discretion to accelerate vesting.”
Yelp Inc: Shareholder Proposals
None. Although Yelp Inc has many issues for future proposals, it also has unequal voting… so shareholders are probably reluctant to put in a lot of work for the small likelihood of passage. Dual-class shares should be transitioned away. See Controlled Companies Underperform, Overpay.
Yelp Inc: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on Colorado PERA and Canada Pension Plan Investment Board (CPPIB). CPPIB voted with management on all issues except the omnibus stock plan. They joined in voting against.
Yelp Inc: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Classified board with staggered terms.
- Classified board with staggered terms.
- 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 and all bylaw provisions.
- No proxy access provisions.
- Unequal voting. Holders of Class Common Stock shall be entitled to one (1) vote per share held. Holders of Class B Common Stock shall be entitled to ten (10) votes per share held.
Yelp Inc: Mark Your Calendar
To be considered for inclusion in next year’s proxy materials, you must submit your proposal, in writing, by November 4, 2016 to our Corporate Secretary at 140 New Montgomery Street, 9th Floor, San Francisco, California 94105, and you must comply with all applicable requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
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.
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