Ellie Mae Inc (NYSE:ELLI, $ELLI) is a provider of on-demand software solutions and services for the residential mortgage industry in the United States. Their annual meeting is coming up on May 25, 2016. ProxyDemocracy.org had collected the votes of no fund families when I checked. Vote AGAINST Bonus Plan; FOR Proxy Access. I voted with the Board’s recommendations 71% of the time. View Proxy Statement via iiWisdom.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Ellie Mae: ISS Rating
From Yahoo! Finance: Ellie Mae, Inc.’s ISS Governance QuickScore as of May 1, 2016 is 7. The pillar scores are Audit: 2; Board: 7; Shareholder Rights: 7; Compensation: 8. 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: Board, Shareholder Rights, Compensation.
Ellie Mae: Compensation
Ellie Mae’s Summary Compensation Table (page 49) shows the highest paid named executive officer (NEO) was former CEO and Chair Sigmund Anderman, at $4M. I’m using Yahoo! Finance to determine market cap ($67.7B) and Wikipedia’s rule of thumb regarding classification. Ellie Mae is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay was considerably under that amount. However, Ellie Mae’s shares underperformed the S&P 500 over the most recent one, two, five and ten year periods.
The MSCI GMIAnalyst report I reviewed gave Ellie Mae 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, 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.
- 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures wealth creation in comparison to other widely held issuers. “Superior” is the rating given. On the actual compensation advisory vote, Egan-Jones concludes:
We believe 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. Therefore, we recommend a vote “FOR” this Proposal.
Despite the issues above, especially underperformance, I voted ‘FOR’ the pay package. Quick, talk me out of it.
Ellie Mae: 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.
Ellie Mae: Board Proposals
As mentioned above, I voted for the pay package. I am concerned the following directors appear to own no stock outright: Dolan, Schultz, Corr, Blasing, Levinson, Taneia, Anderman. Each has restricted stock granted by Elllie Mae for their service but I would prefer to see invest some of their own funds. Of course, given our company’s long-term poor performance, I can understand why they have not done so… but it also makes me wonder why I’m a shareowner.
Egan-Jones recommended in favor of the Incentive Bonus Plan. I think is is too dilutive, especially for a plan that benefits four people. I voted ‘AGAINST.”
Ellie Mae: Shareholder Proposals
#5 Proxy Access. There is only one shareholder proposal on the proxy. The proposal is mine, so you can be sure I voted FOR. Key provisions include allowing an unrestricted group of shareholder owning 3% of common stock over at least 3 years to place nominees totaling up to one quarter of the directors then serving or two, whichever is greater. Proxy access is the most important shareholder right that has to be won through a proxy vote. I’ve been working on this issue since before filing a petition with the SEC in the summer of 2002, which the Council of Institutional Investors said reinvigorated the debate. If you vote only one item on the proxy, let it be FOR #5, proxy access.
Ellie Mae: CorpGov Recommendations Below – Votes Against Board Position in Bold
Neither ProxyDemocracy.org nor Proxy Insight had reported votes when I wrote this up. I was able to determine the votes of Texas Teachers (TRS), which voted the same as me below.
| # | PROPOSAL TEXT | CorpGov /TRS |
|---|---|---|
| 1.1 | Elect Director Carl Buccellato | For |
| 1.2 | Elect Director A. Barr Dolan | For |
| 1.3 | Elect Director Marina Levinson | For |
| 2 | Ratify Grant Thornton LLP as Auditors | For |
| 3 | Ratify Named Executive Officers’ Compensation | For |
| 4 | Approve Executive Incentive Bonus Plan | Against |
| 5 | Proxy Access Included in 1 FocusList: Proxy Access | For |
Ellie Mae: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- 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.
Ellie Mae: Mark Your Calendar
To be considered for inclusion in our proxy materials for next year’s annual meeting in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), your proposal must be submitted in writing by December 8, 2016, to our Secretary at Ellie Mae, Inc., 4420 Rosewood Drive, Suite 500, Pleasanton, California 94588 and must otherwise comply with the requirements of Rule 14a-8 of the Exchange Act.
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 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.
Proxy access victory @ $ELLI Ellie Mae, thx to presentation by Jing Zhao of US-Japan-CPRI http://cpri.tripod.com/index.html Thanks for all your help Jing!