SolarCity Corp

SolarCity Corp: Proxy Score 33

SolarCity CorpSolarCity Corp, SCTY, is engaged in the design, manufacture, installation and sale or lease of solar energy systems to residential and commercial customers, or sale of electricity generated by solar energy systems to customers. Their annual meeting is coming up on June 7, 2016. had collected the votes of two fund families when I checked. Vote AGAINST stock awards, bonus plan, compensation committee; FOR Proxy Access. I voted with the Board’s recommendations 33% 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.

SolarCity Corp: ISS Rating

From Yahoo! Finance: SolarCity Corporation’s ISS Governance QuickScore as of May 1, 2016 is 10. The pillar scores are Audit: 10; Board: 9; Shareholder Rights: 8; Compensation: 9. 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: Audit, Board, Shareholder Rights, Compensation.

SolarCity Corp: Compensation

SolarCity Corp’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Lyndon R. Rive, at $77M. I’m using Yahoo! Finance to determine market cap ($2.3B) and am roughly defining large-cap as $10B, mid-cap as $2-10B, small-cap as less than $2B. SolarCity Corp is a mid-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $5.3M in 2014, so pay was considerably over that amount. SolarCity Corp’s shares underperformed the NASDAQ over the most recent one and two year periods but outperformed over the most recent 5 year period.

The MSCI GMIAnalyst report I reviewed gave SolarCity Corp an overall grade of ‘D.’ 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 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. “Needs Attention” is the rating given. Egan-Jones concludes:


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 Independent outside director John H.N. Fisher.

We don’t get a vote on the pay package this year, maybe that’s why the board felt it was okay to make a mega-grant of $77M to the CEO. I voted ‘AGAINST’ the director awards, the stock plan and the only compensation committee member up for a vote, John H.N. Fisher.

SolarCity Corp: 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.

SolarCity Corp: Board Proposals

The MSCI GMIAnalyst report included the following:

The SOLARCITY board lacks an independent majority. We note that a minority, only 29% of companies in this home market fail to have a majority of independent directors. In the absence of a majority of independent directors, the board is subject to agency problems and potential conflicts of interest that impede its critical monitoring and oversight functions, and may find it difficult to establish fully independent key board committees. Of additional concern is the presence of multiple company executives on the board beyond the CEO, characteristic of 29% of companies in this market. Multiple inside directors may provide a too-strong management perspective within the boardroom. We also note that the board Chairman is an Insider or Executive Chairman. This practice raises parallel concerns as does the combination of CEO and Chair roles: a potential for overly powerful management interests and board level conflicts of interest. 

As mentioned above, I voted ‘AGAINST’ the director awards, the stock plan and the only compensation committee member up for a vote, John H.N. Fisher.

SolarCity Corp: 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. We’re going to need a huge turnout, since insiders have about 38% of the vote.

SolarCity Corp: CorpGov Recommendations Below – Votes Against Board Position in BoldProxy Insight

In addition to the votes counted on ProxyDemocracy.orgProxy Insight hadn’t reported any additional votes when I wrote this up.

1aElect Director Lyndon R. RiveForForWithhold
1bElect Director John H.N. FisherWithholdWithholdWithhold
2Ratify Ernst & Young LLP as AuditorsForForFor
3Approve Outside Director Stock Awards/Options in Lieu of CashAgainstAgainstAgainst
4Amend Omnibus Stock PlanAgainstAgainstAgainst
5Proxy Access

Included in FocusLists Included in 1 FocusList: Proxy Access

SolarCity Corp: Issues for Future Proposals

Looking at 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.
  • Supermajority vote requirement (66.67%) to amend certain charter provisions.

SolarCity Corp: Mark Your Calendar

Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our corporate secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2017 annual meeting of stockholders, our corporate secretary must receive the written proposal at our principal executive offices not later than December 21, 2016. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to: SolarCity Corporation, Attention: Corporate Secretary, 3055 Clearview WaySan Mateo, California 94402.


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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