United Therapeutics 2019: Declassify Board

United Therapeutics 2019 annual meeting is June 26th. To enhance long-term value: Vote AGAINST Causey, Giltner and Olian; pay, stock plan, auditor. Vote FOR Declassify the Board.

United Therapeutics Corporation (UTHR), a biotechnology company, develops and commercializes products to address the unmet medical needs of patients with chronic and life-threatening diseases primarily in the United States and Europe. Most shareholders do not vote.  Reading through 99+ 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 8 minute read. See how I voted in my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations twice, 25% of the time, and one of those votes was for my own proposal. 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.

United Therapeutics 2019: ISS & Sustainalytics Ratings

From the Yahoo Finance profile:

United Therapeutics Corporation’s ISS Governance QualityScore as of April 1, 2019 is 5. The pillar scores are Audit: 5; Board: 3; Shareholder Rights: 4; Compensation: 8.

United Therapeutics 2019 Proxy Voting Guide: Board Proposals

1. United Therapeutics 2019: Directors

Egan-Jones Proxy Services recommends a vote Against Christopher Causey, M.B.A. (1A) Richard Giltner(1B) Judy Olian, Ph.D.(1D)

Causey and Giltner have served on the board for 10 years or more, so cannot be considered independent. Causey and Olian serve on the Compensation Committee, which awarded excess pay.

Vote: AGAINST Causey, Giltner and Olian.

United Therapeutics 2019 Vote Rigging

Vote Rigging: United Therapeutics 2019, “abstentions” (not just votes left blank) are treated as votes AGAINST for all items other than directors.  If you mark your ballot to ABSTAIN because you do not want your vote counted, Illumina will ignore your wish and instead count it as a vote AGAINST.  This vote-rigging would have led me to vote against Christopher Patusky of the nominating and governance committee if he had been up for election, because he approved this deceitful tactic.  Unfortunately, the board is staggered, so Patusky is not up for reelection. If United Therapeutics is going to count ABSTAIN as AGAINST, do not offer ABSTAIN as a voting option. This unusual voting policy is designed to disenfranchise shareholders by over counting AGAINST votes on these critical issues.

2. Executive Compensation

United Therapeutics’ Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Martine Rothblatt at $16.0M. I’m using Yahoo! Finance to determine market cap ($3.8B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. United Therapeutics 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. United Therapeutics shares underperformed the NASDAQ 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 85 to 1.

According to MyLogIQ, mean CEO compensation in the S&P 400 (mid-cap) was $7.4M, median was $6.2M last year. Pay at United Therapeutics puts them well into the top 90% of mid-cap CEOs ($11.7M).

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. They found “some concerns” and recommended Against.

Given above median pay, poor performance and my concern for growing wealth inequality, I voted against and voted against compensation committee members up for reelection.

Vote: AGAINST

3. Amend Omnibus Stock Plan

I am conflicted on this one. Egan-Jones reports it will result in a 1% dilution of stock, whereas Calvert reports a predicted 10% dilution, so voted Against. NYC Pensions also voted Against, so that did it for me.

Vote: AGAINST

4. 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. Ernst & Young, LLP has served more than seven years. No other issues appear significant.

Vote: AGAINST

United Therapeutics 2020: Issues for Future Proposals

Looking at SharkRepellent.net for anti-shareholder provisions:

• Classified board with staggered terms.
• No action can be taken without a meeting by written consent.
• Shareholders cannot call special meetings.
• Supermajority vote requirement (80%) to amend all bylaw provisions.

United Therapeutics 2020: Mark Your Calendar

Shareholder proposals intended for inclusion in our Proxy Statement and form of proxy for our 2020 annual meeting of shareholders pursuant to Rule 14a-8 of the Exchange Act must be received by us at the address indicated below no later than 5:00 p.m. Eastern Time on January 8, 2020, unless the date of the 2020 annual meeting is more than thirty (30) days before or after the anniversary of the Annual Meeting, in which case the deadline is a reasonable time before we begin to print and send our proxy materials. In addition, proposals must otherwise comply with the rules of the SEC for inclusion in our Proxy Statement and form of proxy relating to that meeting.

All notices of proposals or nominations, as applicable, must be given in writing to our Corporate Secretary by overnight mail, acceptance signature required, to United Therapeutics Corporation, Attention: Corporate Secretary, 1735 Connecticut Avenue N.W., Washington, D.C. 20009.

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.