Kite Pharma, Inc. (KITE), a clinical-stage biopharmaceutical company, focuses on the development and commercialization of novel cancer immunotherapy products. Kite is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of no fund families when I checked and voted. Their annual meeting is coming up on June 20th, 2017.
I voted FOR Proposal #3 to Declassify the Board. See how and why I voted other items below. I voted with the Board’s recommendations 43% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).
Kite Proxy Voting Guide: ISS Rating
From the Yahoo Finance profile: Kite Pharma, Inc.’s ISS Governance QualityScore as of June 2, 2017 is 10. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 8; 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: the Board, Shareholder Rights, and Compensation.
Kite Proxy Voting Guide: Compensation
Kite Pharma’s Summary Compensation Table (p. 35) shows the highest paid named executive officer (NEO) was Executive Vice President of Technical Operations Timothy L. Moore at $11.0M in 2016. I am using Yahoo! Finance to determine the market cap ($5B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Kite Pharma is a mid-cap company. According to EY Center for Board Matters, the 3-yr average CEO compensation is $6.2M at mid-cap corporations, so pay was well above that amount. Kite shares outperformed the NASDAQ over the most recent one, two, five, and maximum 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.
Kite earned a compensation score of “Good.”
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 voted “AGAINST” the say-on-pay item. The “Lake Woebegone effect,” where everyone is above average and the averages are recalculated upward every year, has to stop. We cannot just keep voting in favor of higher and higher pay packages. I could understand paying more than median, since Kite has done well but not that much more. I would have also voted against all the compensation committee members, if Kite had a declassified board: David Bonderman, Chairman, Franz B. Humer and Steven B. Ruchefsky.
Kite Proxy Voting Guide: Board Proposals
1 – Election of Directors
Egan-Jones recommended that clients vote for all directors. As indicated above, I voted against Compensation Committee Members. I also voted against Humer as chair of the Nomination Committee for failing to address the CEO’s overboarding.
2 – Ratification of Auditors
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’m not ready to make that a disqualification, yet. I voted FOR.
4 – Advisory Vote on Executive Compensation
As explained above, I voted AGAINST.
5 – Advisory Vote on Frequency of Executive Compensation
I always support an annual shareholder advisory vote on compensation
Kite Proxy Voting Guide: Shareholder Proposals
#3 Declassify the Board of Directors
Myra K. Young (that’s my wife) is the proponent. I voted ‘FOR.’ Shareholders should be able to hold all directors accountable every year.
As mentioned above, ProxyDemocracy.org had collected the votes of no funds when I voted. Proxy Insight reported votes from Calvert and British Columbia Investment Management Company. All voted FOR #3, declassify the board of directors
Kite Proxy Voting Guide: Issue for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners. There are plenty.
- 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 and all bylaw provisions.
- No proxy access rights for shareholders.
Kite Proxy Voting Guide: Mark Your Calendar
To be considered for inclusion in the Company’s proxy materials for next year’s annual meeting, your proposal must be submitted in writing by December 29, 2017, to Kite Pharma, Inc., 2225 Colorado Avenue, Santa Monica, California 90404, Attn: Secretary.
You are also advised to review the Company’s Bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations.
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.