Alarm 2020

Alarm.com 2020 Declassify Board

Alarm.com 2020 annual meeting is 6/3/2020 at 6AM Pacific virtually. To enhance long-term value: Vote FOR both directors, Pay, Elect Each Director Annually, End Supermajority Requirements.  Vote AGAINST Auditor. See list of all virtual-only meetings maintained by ISS. Be sure to vote by 6/2 to have your vote count. Voting at the meeting or even asking questions looks nearly impossible.

Alarm.com Holdings, Inc. provides cloud-based software platform solutions for smart residential and commercial properties in the United States and internationally. Reading through the proxy takes too much time for most. 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 67% 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.com 2020: ISS Ratings

From the Yahoo Finance profile: Alarm.com Holdings, Inc.’s ISS Governance QualityScore as of December 5, 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 the Board, Shareholder Rights, and Compensation.

Alarm.com 2020 Proxy Voting Guide: Board Proposals

1. Alarm.com 2020 DirectorsEgan-Jones

Egan-Jones Proxy Services recommends For all directors. Due to the classified board, only two are up for reelection this year.

Vote: FOR both.

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

mylogiq_logoAlarm.com 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Stephen Trundle at $3M. I’m using Yahoo! Finance to determine market cap ($2.3B and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Alarm.com is a borderline small-cap company.

According to MyLogIQ , the median CEO compensation at small-cap corporations was $3.9M in 2019. Alarm.com shares underperformed during the last one year time period but outperformed during the last 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 29:1.

Egan-Jones Proxy Services recommends FOR:

We believe that shareholders should support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.

Given below median pay, mixed performance and E-J recommendation, I voted FOR.

Vote: FOR

5. Eliminate Supermajority Voting Requirements

As a result of my proposal on this topic winning 65% of the vote last year, the board is including this proposal to ratify that vote. Because of existing supermajority provisions, 66.67% is needed for passage… and that is not 66.67% of votes cast but of all eligible stock. That seems unlikely, unless the board makes an effort to get out the vote. Additionally, it seems very odd to me to place this on the ballot below a current shareholder proposal (although I have grouped it here with Board proposals).

Egan-Jones recommends For:

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.

Vote: FOR

Alarm.com 2020 Shareholder Proposals

4. Shareholder Proposal: Elect Each Director Annually

This good governance proposal from me (James McRitchie) asks that our Company reorganize the Board of Directors into one class with each director subject to election each year for a one-year term.
Almost 90% of S&P 500 and Fortune 500 companies, worth more than one trillion dollars have adopted this important proposal topic since 2012. Annual elections are widely viewed as a corporate governance best practice. Annual election of each director could make directors more accountable, and thereby contribute to improved performance and increased company value.
Last year and earlier this year shareholder proposals to elect each director annually (declassify the board) won large majority votes at National Fuel Gas, Farmer Brothers, Western Asset, BlackRock Credit, United Therapeutics, Knight Swift Transportation Holdings, Anthem, and Kellogg.
Adoption of this proposal would be facilitated by adoption of my proposal that won strong support at the 2019 Alarm.com annual meeting – move to a simple majority vote standard.
Egan-Jones recommends For:
We believe that corporate governance procedures and practices, and the level of accountability that the Company imposes, are closely related to financial performance. 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.
Vote: FOR

Proxy Insight

Alarm.com 2020 CorpGov Recommendations

Proxy Insight had not reported any votes in advance of the meeting when I last checked. 

Looking up a few funds announcing votes in advance, NYC Pensions voted FOR all items. Calvert voted Against McAdam for failur to declassify the board and for lack of board diversity. They also voted against the Pay item. CBIS also voted Against McAdam and Against the Auditor.  

CorpGov Votes:

  1. Directors: FOR both
  2. Auditor: AGAINST
  3. Executive Pay: FOR
  4. Elect Each Director Annually: FOR
  5. Eliminate Supermajority Requirements: FOR

Alarm.com 2020: Mark Your Calendar

To be considered for inclusion in next year’s proxy materials, you must submit your proposal, in writing, by December 24, 2020, 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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