Medivation Inc. (MDVN), a biopharmaceutical company, focuses on the development and commercialization of medical therapies to treat serious diseases in the United States. Their annual meeting is coming up on June 22, 2016.
ProxyDemocracy.org had collected the votes of two fund families when I checked. Vote AGAINST pay, committee, stock plan; FOR proxy access. I voted with the Board’s recommendations 59% 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.
Medivation Inc: ISS Rating
From Yahoo! Finance: Medivation, Inc.’s ISS Governance QuickScore as of Jun 1, 2016 is 5. The pillar scores are Audit: 1; Board: 3; Shareholder Rights: 7; Compensation: 6. 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.
Medivation Inc: Compensation
Medivation’s Summary Compensation Table (p. 52) shows the highest paid named executive officer (NEO) was CEO and President David T. Hung at $9.6M. I’m using Yahoo! Finance to determine market cap ($9.8B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Medivation is the cusp of 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 under that amount but over the $5.3M median pay at mid-caps. Medivation’s shares outperformed the NASDAQ over the most recent one, two, five and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave Medivation 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 company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- 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.
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. On the actual compensation advisory vote, Egan-Jones concludes:
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.
This is a borderline case. Taking into account the issues above, I voted ‘AGAINST’ the pay package. I also followed my normal practice and EJ’s advice, voting against the compensation committee:
We recommend that clients “WITHHOLD” votes from Affiliated Outside director Dawn Svronos, current member of the Compensation and Nominating & Corporate Governance committees of the Board. We believe that key Board committees namely Audit, Compensation and Nominating committees should be comprised solely of Independent outside directors for sound corporate governance practice.
Also, 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 Affiliated outside director Dawn Svronos and Independent outside directors W. Anthony Vernon and Wendy L. Yarno. 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.
Medivation 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.
Medivation Inc: Board Proposals
As mentioned above, I voted against the pay package and members of the compensation committee.
#4 Amend Omnibus Stock Plan – Per Egan-Jones
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 [primarily dilution], 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.
I voted ‘AGAINST.’
Medivation Inc: 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, on the proxy. 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.
Directors are only really accountable to shareholders if they can be removed from the board and replaced with nominees of the shareowner’s choosing. Proxy Access in the United States: Revisiting the Proposed SEC Rule, a cost-benefit analysis by the Chartered Financial Analyst Institute foundProxy access would “benefit both the markets and corporate boardrooms, with little cost or disruption,” raising US market capitalization by up to $140 billion. If you vote only one item on the proxy, let it be FOR #5, proxy access.
Medivation Inc: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to votes gathered by ProxyDemocracy.org, Proxy Insight had reported votes of Canada Pension Plan Investment Board (CPPIB), Colorado PERA (COPERA), and Teacher Retirement System of Texas (TRS) which each voted all items on the proxy “FOR,” with the exception that COPERA voted against Dawn Svoronos.
| # | PROPOSAL TEXT | CorpGov | CALVERT | FLORIDA SBA |
|---|---|---|---|---|
| 1.1 | Elect Director Kim D. Blickenstaff | For | For | For |
| 1.2 | Elect Director Kathryn E. Falberg | For | For | Withhold |
| 1.3 | Elect Director David T. Hung | For | For | For |
| 1.4 | Elect Director Michael L. King | For | For | For |
| 1.5 | Elect Director C. Patrick Machado | For | For | For |
| 1.6 | Elect Director Dawn Svoronos | Withhold | For | Withhold |
| 1.7 | Elect Director W. Anthony Vernon | Withhold | For | Withhold |
| 1.8 | Elect Director Wendy L. Yarno | Withhold | For | For |
| 2 | Ratify PricewaterhouseCoopers LLP as Auditors | For | For | For |
| 3 | Ratify Named Executive Officers’ Compensation | Against | Against | For |
| 4 | Amend Omnibus Stock Plan | For | Against | For |
| 5 | Proxy Access Included in 1 FocusList: Proxy Access | For | For | For |
Medivation Inc: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Shareholders cannot call special meetings.
- No right to proxy access.
Medivation Inc: Mark Your Calendar
To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by January 6, 2017, to our Corporate Secretary at 525 Market Street, 36th 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.
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.
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