Axon Enterprise, Inc. (AAXN) develops, manufactures, and sells conducted electrical weapons (CEWs) worldwide. Most shareholders do not vote because reading through 60+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why.
If you have read these posts related to my portfolio for the last 22 years, have values aligned with mine, and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.
The annual meeting is coming up on May 24, 2018. I voted with the Board’s recommendations 25% 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.
Axon: ISS Rating
From the Yahoo Finance profile: Axon Enterprise, Inc.’s ISS Governance QualityScore as of April 1, 2018 is 6. The pillar scores are Audit: 5; Board: 4; Shareholder Rights: 6; Compensation: 4.
Axon: Board Proposals
1. Axon Proxy Voting Guide: Directors
Egan-Jones Proxy Services recommends “against” for Ricahard Carmona and Brent Taylor – Carmona because he has served more than 10 years on the Board, so is no longer considered independent; Taylor for attending less than 75% of Board meetings.
I voted AGAINST Carmona and Taylor.
2. Approve the CEO Performance Award (Stock Option Grants)
Egan-Jones notes Axon: “should re-evaluate and re-assess its Remuneration Policy regarding CEO performance awards to ensure that the interests of the key individuals are aligned with the business strategy and risk tolerance, objectives, values and long-term interests of the Company and will be consistent with the “pay-for-performance” principle. Accordingly, we recommend a vote AGAINST this Proposal.”
3. Axon: Executive Compensation
Axon’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Patrick W. Smith at $3.8M. I’m using Yahoo! Finance to determine market cap ($3B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Axon 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 under that amount. Axon shares outperformed the Nasdaq over the most recent one, two, and five year time periods. Axon did not appear on As You Sow‘s list of the 100 Most Overpaid CEOs. Prior reports have shown that being on that list is correlated with lower returns in subsequent years. However, maybe they did not appear because the company is too small to be covered. Mr. Smith’s annual total compensation is forty-one times (or a ratio of 41 to 1) that of the estimated median compensated Axon employee.
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. “Some Concerns” is their rating given on compensation issues for Axon.
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.
Given above median pay, the recommendation of Egan-Jones, the vote of Calvert, and my concern with growing wealth inequality,
I voted “AGAINST.”
4. Axon: Ratify 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 notes that Grant Thornton, LLP has been serving as the Company’s auditor for seven years and their independence is compromised. I also believe that the companies should consider the rotation of their audit firm to ensure auditor objectivity, professionalism and independence. However, I have not set a specific number of years.
I voted FOR.
5. Axon: 2018 Stock Incentive Plan
E-J recommended against; institutional investors disclosing their votes voted against.
I voted AGAINST.
Axon: Shareholder Proposals
6. Axon Shareholder Proposal: Elect Directors Annually
This is my proposal (James McRitchie), so of course I voted For. This good governance proposal simply asks that our Board take the steps necessary to reorganize into one class with each director subject to election each year and to complete this transition within one-year.
In 2010 over 70% of S&P 500 companies had annual election of directors. Now that number stands at 89%. Most (65%) mid-caps have also declassified their boards. It is time for to join the 21st century. Shareholder resolutions on this topic won 81% support at Kite Pharma, 63% at Netflix, 83% at new Media Investment, 71% at Citizens First, and 87% at Sevcon.
It is intuitive that when directors are accountable for their actions, they perform better. We, therefore, prefer that the entire board of a company be elected annually to provide appropriate responsiveness to shareholders. After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote FOR this Proposal.
I voted FOR.
Axon CorpGov Recommendations
Proxy Democracy is still down. I am starting to look for contributions to bring it back to life. Proxy Democracy provided information on votes cast in advance of annual meetings by institutional investors at thousands of companies. If you think that is worthy of financial support, please contact me.
As I write this on May 20, Proxy Insight had reported on Texas Teachers, Calvert and CBIS. All three voted against Taylor, the CEO performance award, the omnibus stock plan and for Cullivan, the auditor and elect directors annually (declassify the board). Calvert and CBIS also voted against the executive pay plan. Additionally, Calvert voted against Carmona.
- Directors: AGAINST Carmona and Taylor. FOR Cullivan.
- CEO Performance Award (Stock Option Grants): AGAINST
- Executive Compensation: AGAINST
- Auditor: FOR
- Stock Incentive Plan: AGAINST.
- Elect Directors Annually: FOR
Axon: Issues for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners:
- Classified board with staggered terms.
- Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
- Supermajority vote requirement (66.67% or 75%) to amend certain charter provisions. Supermajority vote requirement (66.67%) to amend all bylaw provisions.
Axon: Mark Your Calendar
To be eligible for inclusion in the Company’s proxy materials for the 2019 Annual Meeting of Shareholders, a proposal intended to be presented by a shareholder for action at that meeting must, in addition to complying with the shareholder eligibility and other requirements of the SEC’s rules governing such proposals, be received not later than December 14, 2018 by the Corporate Secretary of the Company at the Company’s principal executive offices, 17800 North 85th Street, Scottsdale, Arizona 85255.
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. For more on the subject, see CEO Pay Machine Destroying America.
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