PetMed Express 2019 annual meeting is July 26th. To enhance long-term value. Vote AGAINST Campbell, Formica, Fulgoni, Korn and Schweitzer, Pay, & Auditor. Vote FOR Amend Bylaws and Eliminate Supermajority Provisions.
PetMed Express, Inc. (PETS) and its subsidiaries, doing business as 1-800-PetMeds, operates as a pet pharmacy in the United States. Most shareholders do not vote. Reading through 40+ 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 20% 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.
PetMed 2019: ISS Rating
From the Yahoo Finance profile:
PetMed Express, Inc.’s ISS Governance QualityScore as of June 25, 2019 is 6. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 2; Compensation: 9.
PetMed 2019 Proxy Voting Guide: Board Proposals
1. PetMed 2019: Directors 
Egan-Jones Proxy Services recommends Against (1C) Frank J. Formica, (1D) Gian M. Fulgoni, (1E) Ronald J. Korn and (1F) Robert C. Schweitzer — the first three because they have served on the board for 10 years or longer and can no longer be considered independent. — Schweitzer because the Chairman of the Board should be held accountable in cases when the Company obtains the score of ‘Needs Attention’ on the ‘Cyber Security Risk Rating.’ Calvert indicates, “A vote AGAINST Compensation Committee members Robert Schweitzer, Leslie Campbell, Frank Formica, Gian Fulgoni, and Ronald Korn is warranted for insufficient responsiveness to low shareholder support for the say-on-pay votes in consecutive years.”
Vote: AGAINST Leslie Campbell, Frank Formica, Gian Fulgoni, Ronald Korn and Robert Schweitzer.
2. Amend Bylaws
While I don’t like the Board bundling changes, most are minor fixes. One exception is reducing the threshold for a special meeting from 20% to 10%. That gives shareholders more power.
Vote: FOR
3. Executive Compensation
PetMed’s Summary Compensation Table (p. 29) shows the highest paid named executive officer (NEO) was CFO Bruce S. Rosenbloom at $866K. I’m using Yahoo! Finance to determine market cap ($351.5M) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. PetMed is a small-cap company.
According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at small-cap corporations was $3M in 2014. PetMed shares underperformed the NASDAQ over the most recent one, two, and fi
ve 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 23 to 1.
According to MyLogIQ, mean CEO compensation among small-caps was $4.1M, median was $3.6M last year. Pay at PetMed puts them about in the bottom 10% of small-caps ($1.2M).
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.
I voted against, primarily because the stock has underperformed so badly during the last 1, 2 and 5 years.
Vote: AGAINST
Ratification of Independent Auditor
I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. However, the auditor has served for seven years. Independence becomes compromised by that time. RSM US LLP has served more than seven years. No other issues appear significant.
Vote: AGAINST
PetMed 2019 Shareholder Proposals
4. Board Proposal: Eliminate Supermajority Provisions
This good governance proposal from me, so I voted for it. As noted by Egan-Jones, “We believe that the advantages of eliminating supermajority provisions outweigh the benefits of maintaining it as a voting standard. We believe that a simple majority vote will strengthen the Company’s corporate governance practice. Contrary to supermajority voting, a simple majority standard will give the shareholders equal and fair representation in the Company by limiting the power of shareholders who own a large stake in the entity, therefore, paving way for a more meaningful voting outcome.” Calvert also voted For: “A vote FOR this proposal is warranted given that elimination of the supermajority vote requirement enhances shareholder rights.”
Vote: FOR
PetMed 2019 CorpGov Recommendations
Proxy Insight had reported only two fund votes as of when I last checked. (see below) They may have updated by the time you read this.
In looking up a few funds in our Shareowner Action Handbook, I see Calvert and Praxis voted the same as I recommend, except that both voted to ratify the auditor. CBIS voted against the auditor and pay.
- Directors: AGAINST Leslie Campbell, Frank Formica, Gian Fulgoni, Ronald Korn and Robert Schweitzer
- Amend Bylaws: FOR
- Executive Pay: AGAINST
- Auditor: AGAINST
- Eliminate Supermajority Provisions: FOR
PetMed 2020: Issues for Future Proposals
Looking at SharkRepellent.net for anti-shareholder provisions:
- Supermajority vote requirement (67%) to amend certain bylaw provisions.
PetMed 2020: Mark Your Calendar
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) stockholders may present proper proposals for inclusion in the Company’s next year’s proxy statement and for consideration at next year’s annual meeting of stockholders by submitting their proposals to the Company, not less than 120 calendar days prior to the anniversary date of our Proxy Statement distributed to our stockholders in connection with our Annual Meeting. Therefore, proposals that stockholders wish to be included in next year’s proxy statement for the annual meeting of stockholders to be held in 2020 must be received at the Company’s principal place of business at 420 South Congress Avenue, Delray Beach, FL 33445, addressed to the Corporate Secretary’s attention, not later than one hundred twenty (120) calendar days prior to the anniversary date of our Proxy Statement. Upon receipt of any proposal, we will determine whether to include such proposal in accordance with regulations governing the solicitation of proxies.
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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