Paycom 2019

Paycom 2019: Proxy Voting Recommendations

The Paycom 2019 annual meeting is April 29th at 5300 Gaillardia Boulevard, Oklahoma City at 11:00 a.m. local time. Your last opportunity to vote online is April 28th. To increase corporate performance and shareholder value, WITHHOLD votes from Clark and Duques. Vote AGAINST pay; FOR auditor and FOR shareholder proposal to declassify the board.

Paycom Software, Inc. (PAYC) provides cloud-based human capital management (HCM) software service for small to mid-sized companies in the United States. Most shareholders do not vote.  Reading through 55+ pages of the proxy takes too much time. Your vote will make only a small difference but could be crucial. Below, how I voted and why.

If you have read these posts related to my portfolio and proxy proposals for the last 24 years and trust my judgment, skip the 8 minute read. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 33% 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.

Paycom 2019: ISS Rating

From the Yahoo Finance profile: Paycom Software, Inc.’s ISS Governance QualityScore as of April 1, 2019 is 8. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 8; Compensation: 7.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. We need to pay close attention to members of the Board,  Shareholder Rights, and Compensation issues.

Paycom 2019 Proxy Voting Guide: Board Proposals

1. Paycom 2019: Directors

Egan-Jones Proxy Services recommends FOR, without exception. Audit, Compensation and Corporate Governance/Nominating committees, were solely of Independent outside directors. Also, each director attended at least 75% of all the meetings of the Board and of the committees during fiscal year 2018.

Given far above median pay and my concern for growing wealth inequality, I voted against say-on-pay and also voted against the members of the compensation committee that are up for election:

  • Jason D. Clark, Chairperson
  • Henry C. Duques

Vote AGAINST: Clark and Duques.

2. Paycom 2019: Executive Compensation

Paycom’s Summary Compensation Table shows the highest paid named executive officer (NEO) was President and CEO Chad Richison at $16.9M. I’m using Yahoo! Finance to determine market cap ($11.1B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Paycom is 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. Paycom shares outperformed the S&P 500 over the most recent one, two, and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 254 to 1.

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. They believe the company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.Egan-Jones

Given far above median pay and my concern for growing wealth inequality, I voted AGAINST and also voted against the members of the compensation committee:

Vote AGAINST.

3. Paycom 2019: Ratification of Independent Auditor

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. Grant Thornton, LLP has not served more than seven years. However, Egan-Jones notes censure by the PCAOB and other issues, indicating the auditor “needs attention,” recommending a vote Against. Auditors are frequently censured. I do not see this issue rising to the level of high concern.

Vote FOR.

Paycom 2019: Shareholder Proposals

4. Shareholder Proposal: Declassify the Board

This good governance proposal is from me (James McRitchie), so of course I support it. Per Egan-Jones: “We believe that staggered terms for directors increase the difficulty for shareholders of making fundamental changes to the composition and behavior of a board. We prefer that the entire board of a company be elected annually to provide appropriate responsiveness to shareholders. We recommend a vote FOR this Proposal.”

According to one of our largest shareholders; BlackRock, “Directors should be elected annually to discourage entrenchment and allow shareholders sufficient opportunity to exercise their oversight of the board.” BlackRock voted for shareholder proposals to declassify boards 6 times out of 6 in 2018, as did Vanguard.

This proposal should also be evaluated in the context of our Company’s overall corporate governance as of the date of this submission: Paycom retains supermajority voting provisions. Shareholders cannot call special meetings. Shareholders have no right to act by written consent. A plurality vote standard is used to elect directors. The combined effect is to lock the board into an out-dated corporate governance structure and reduce board accountability to shareholders.

Vote FOR.

Paycom 2019 CorpGov RecommendationsProxy Insight

Proxy Insight reported Calvert and Trillium both voted WITHHOLD on all directors, FOR the auditor AGAINST pay and FOR my proposal to declassify the board. In looking up a few funds on our Shareowner Action Handbook, I see the New York City Comptroller voted almost the same, with the exception that he voted FOR pay.

CorpGov Votes:

  1. Directors: Withhold vote from Jason D. Clark and Henry C. Duques
  2. Executive Pay: AGAINST
  3. Auditor: FOR
  4. Declassify Board of Directors: FOR

Paycom 2019: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • Classified board with staggered terms.
  • Plurality vote standard to elect directors with 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.

Paycom 2019: Mark Your Calendar

Pursuant to Rule 14a-8 under the Exchange Act, some stockholder proposals may be eligible for inclusion in our 2020 proxy statement. In order to be considered for inclusion in our 2020 proxy statement, a stockholder proposal must satisfy the requirements of Rule 14a-8 and be timely received. To be timely, any proposal must be received by us at our principal executive offices at or before the close of business (5:00 p.m. local time) on November 29, 2019. If we hold our next annual meeting of stockholders on a date that is more than 30 days from the anniversary of the Annual Meeting, any stockholder proposal must be received a reasonable time before we begin to print and send our proxy materials. Failure to deliver a proposal in accordance with this procedure may result in the proposal not being deemed timely received.

Our principal executive offices are located at, and our mailing address is, 7501 W. Memorial Road, Oklahoma City, Oklahoma 73142.

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,” chosen by aspiration. 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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