Alarm 2019

Alarm 2019 Proxy Guide

Alarm 2019 annual meeting is June 5th. To enhance long-term value. Vote AGAINST Auditor. Vote FOR all other items, including shareholder proposal to eliminate supermajority requirements.

Alarm.com Holdings, Inc. (ALRM) provides cloud-based software platform solutions for smart residential and commercial properties in the United States and internationally. Most shareholders do not vote.  Reading through 58+ pages of the proxy takes too much time. Your vote 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 7 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 60% 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.

Alarm 2019: ISS & Sustainalytics Ratings

From the Yahoo Finance profile:

Alarm.com Holdings, Inc.’s ISS Governance QualityScore as of April 1, 2019 is 8. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 8; Compensation: 9.

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.

Alarm 2019 Proxy Voting Guide: Board Proposals

1. Alarm 2019: Directors

Egan-Jones Proxy Services recommends a vote FOR all directors.

Vote FOR

2. 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. PricewaterhouseCoopers, LLP has served more than seven years. No other issues appear significant.

Vote AGAINST.

3. Executive Compensation

Alarm’s Summary Compensation Table shows the highest paid named executive officer (NEO) was President and CEO Stephen Trundle at $1.9M. I’m using Yahoo! Finance to determine market cap ($2.9B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Alarm is a mid-cap company.

According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $8.4M in 2014. Alarm shares outperformed the NASDAQ over the most recent one, two, and fimylogiq_logove 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 19 to 1.

According to MyLogIQ, mean CEO compensation in S&P 600 was $4.1M, median was $3.6M last year. Pay at Alarm.com puts them under the 25% of S&P 600 CEOs ($2.3M).

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 outperformance and below median pay, I voted For.

Vote FOR.

4. Shareholder Proposal: Eliminate Supermajority Requirements

This good governance proposal comes from me, James McRitchie, so of course I voted FOR. Egan-Jones agrees: “we support proposals calling for majority vote requirement.”

Large funds, such as BlackRock, SSgA and Northern Trust generally support elimination of supermajority requirements, since most view them as an entrenchment device for management. For example, BlackRock’s Proxy Voting Guidelines for U.S. Securities reads as follows:

We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders’ ability to protect their economic interests is improved.

Vote: FOR

Alarm 2019 CorpGov RecommendationsProxy Insight

Proxy Insight had reported votes Calvert as of when I last checked. Calvert Withheld their vote from both directors and voted Against pay. They voted For the auditor and my my simple majority vote proposal. 

In looking up a few funds in our Shareowner Action Handbook, CBIS Withheld their vote for both directors, voted Against the auditor and For pay and my simple majority vote proposal. The NYC Comptroller voted the same, except For the auditor.


CorpGov Votes:

  1. Directors: FOR both
  2. Auditor: AGAINST
  3. Executive Pay: FOR
  4. Eliminate Supermajority Requirements: FOR

Alarm 2020: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • 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.

Alarm 2020: Mark Your Calendar

To be considered for inclusion in next year’s proxy materials, you must submit your proposal, in writing, by December 28, 2019, to our Corporate Secretary c/o Alarm.com Holdings, Inc., 8281 Greensboro Drive, Suite 100, Tysons, Virginia 22102, and you must comply with all applicable requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (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,” 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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