Netgear Proxy Voting Guide by James McRitchie of CorpGov.net. NETGEAR, Inc. (NTGR) designs, develops, and markets innovative networking solutions and smart connected products for consumers, businesses, and service providers. NTGR one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of one fund family when I checked and voted. Their annual meeting is coming up on June 1, 2017.
I voted FOR James McRitchie’s shareholder proposal to provide a right to special meeting for shareholders with 15% of the common voting stock. See how and why I voted other items below. I voted with the Board’s recommendations 64% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Netgear Proxy Voting Guide: ISS Rating
From the Yahoo Finance profile: NETGEAR, Inc.’s ISS Governance QualityScore as of May 1, 2017 is 1. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 2; Compensation: 2. 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: the Board, Shareholder Rights and Compensation but focus should be light given rating.
Netgear Proxy Voting Guide: Compensation
Netgear’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Patrick C.S. Lo, at $4.5M in 2016. I am using Yahoo! Finance to determine the market cap ($1.4B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Netgear is a mid-cap company. According to EY Center for Board Matters, the 3-yr average CEO compensation at mid-cap corporations was $6.2, so pay was well below that amount. Netgear’s shares outperformed the NASDAQ over the most recent two time period but underperformed over the last one, five, and ten year time periods.
Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.
SBUX earned a compensation score of “Superior,”
and as such, we believe that shareholders should 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 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.
I agreed, and voted FOR.
Netgear Proxy Voting Guide: 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. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar, so voted FOR.
Netgear Proxy Voting Guide: Board Proposals
As mentioned above, I voted “For” the pay package. I also voted a say-on-pay frequency of one year (item #4) With regard to director nominees, Egan-Jones recommended that clients
WITHHOLD votes from Affiliated outside directors Ralph E. Faison and Gregory J. Rossmann, current members of the Compensation and Nominating/Corporate Governance Committees of the Board and Affiliated outside director Jef T. Graham, current member of the Audit Committee. We believe that key Board committees namely Audit, Compensation and Nominating/Corporate Governance Committees should be comprised solely of Independent outside directors for sound corporate governance practice.
That seems like excellent advice to me, so I did the same.
#5 Provide Right to Call Special Meeting
Netgear currently offers know right for shareholders to hold a special meeting and probably would not have proposed a right of 25% of shares to do so, had I not filed my proposal.
Egan-Jones believes, “the current threshold of the Company will strike an appropriate balance between the right of shareholders to call a special meeting and the interests of the Company and its shareholders.” Of course, there is no “current threshold.”
I voted against #5, as explained below.
Netgear Proxy Voting Guide: Shareholder Proposals
#6 Amend Bylaws– Call Special Meetings
This my proposal (James McRitchie), so of course I voted “FOR.” Delaware law allows 10% of company shares to call a special meeting. A shareholder right to call a special meeting is a way to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle.
As indicated above, Netgear probably would have not proposed a right of 25% of shares to call a special meeting. A right of 15% seems a reasonable compromise above the minimum 10% threshold allowed by Delaware. As last reported, BlackRock held 12% and Vanguard held 10% of Netgear. Neither are activist funds so will not be calling a special meeting unless Netgear craters.
Many funds will vote in favor of both proposals #5 and #6 to ensure we get some sort of special meeting right. I would advise against that. If both proposals get an equal vote, the Board will assume shareholders have no preference. If proposal #6 gets a higher vote, the Board is more likely approve 15% as the threshold. Or, they could compromise with a 20% threshold. However, no compromise is likely if proposal #5 gets a higher vote.
Netgear Proxy Voting Guide: Votes Against Board Position in Bold
As mentioned above, ProxyDemocracy.org had collected the votes of four funds when I voted. Proxy Insight reported additional votes from CalSTRS, Calvert and others. All voted FOR #6, my proposal for special meetings. I was glad to see CalSTRS voted Against #5, probably using the same logic I discussed above.
|1.1||Elect Director Patrick C.S. Lo||For||For|
|1.2||Elect Director Jocelyn E. Carter-Miller||For||For|
|1.3||Elect Director Ralph E. Faison||Against||For|
|1.4||Elect Director Jef T. Graham||Against||For|
|1.5||Elect Director Gregory J. Rossmann||Against||For|
|1.6||Elect Director Barbara V. Scherer||For||For|
|1.7||Elect Director Julie A. Shimer||For||For|
|1.8||Elect Director Grady K. Summers||For||For|
|1.9||Elect Director Thomas H. Waechter||For||For|
|2||Ratify PricewaterhouseCoopers LLP as Auditors||For||Against|
|3||Advisory Vote to Ratify Named Executive Officers’ Compensation||For||For|
|4||Advisory Vote on Say on Pay Frequency||One Year||One Year|
|5||Provide Right to Call Special Meeting||Against||For|
|6||Amend Bylaws– Call Special Meetings|
Has 1 user-contributed link with more info
Netgear Proxy Voting Guide: Issue for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Proxy access provision whereby a shareholder or group of no more than 50 stockholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors constituting up to the greater of two directors or 20% of the of the total number of directors then serving on the board. The right was prompted by my proposal last year, which I withdrew.
Netgear Proxy Voting Guide: Mark Your Calendar
As a stockholder, you may be entitled to present proposals for action at a forthcoming meeting if you comply with the requirements of the proxy rules established by the Securities and Exchange Commission. Proposals by our stockholders intended to be presented for consideration at our 2018 Annual Meeting must be received by us no later than December 22, 2017 (120 calendar days prior to the anniversary of the mailing date of this proxy statement), in order that they may be included in the proxy statement and form of proxy related to that meeting. The submission of the stockholder proposal does not guarantee that it will be included in our 2018 proxy statement.
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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