Guidewire Software 2020 annual meeting is December 15th. To enhance long-term value. Vote AGAINST Andrew Brown, Michael Keller, Auditor, Pay, Stock Plan. Vote FOR Adopt Simple Majority Vote Standard. The virtual-only webcast will start at 1:30 p.m. Pacific Time. Guidewire Software, Inc. provides software products for property and casualty insurers worldwide. Reading through 75+ pages of the proxy takes too much time. Your vote could be crucial. Below is 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.
Guidewire Software 2020: ISS Ratings
From the Yahoo Finance profile:
Guidewire Software, Inc.’s ISS Governance QualityScore as of November 2, 2019 is 7. The pillar scores are Audit: 5; Board: 4; Shareholder Rights: 5; Compensation: 10.
Guidewire Software 2020: Board Proposals
1. Guidewire Software 2020: Directors
Egan-Jones Proxy Services recommends a vote FOR all directors, except 1a) Andrew Brown and 1c) Michael Keller. The Compensation Committee should be held accountable for failing to align CEO and employee pay more clearly, linking that pay with the performance of the company. Agreed. Since I also voted down the say on pay, that is another reason for voting against both.
Vote: FOR all directors, except 1a) Andrew Brown and 1c) Michael Keller.
2. Executive Compensation
Guidewire Software’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Mike Rosenbaum at $19.6M. I’m using Yahoo! Finance to determine market cap ($11B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Guidewire Software just makes it into the large-cap company category.
According to MyLogIQ, the median CEO compensation at large-cap corporations was $12.7M in 2019. Most are much larger. Guidewire Software shares outperformed the S&P 500 over the most recent five- and two-year time periods but underperformed during the most recent year. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 118 to 1.
Egan-Jones Proxy Services believes the Company’s compensation is strongly aligned with the long-term interest of its shareholders. They recommend: For.
I found Calvert’s analysis more compelling. “The CEO’s total pay exceeds 4 times the average NEO pay. CEO pay exceeds the 75th percentile of peers and the company’s performance is below the 75th percentile of the peer group. A vote AGAINST this proposal is warranted.” Relative TSR portions “can potentially be earned at target for below-median performance.” The CEO’s $18 million equity grant is substantial relative to peers. The proxy lacks disclosure surrounding the proportion of the grant considered a make-whole award, which inhibits an informed assessment of the grant. “Further, CEO Rosenbaum’s base salary was set significantly higher than his predecessor’s and peers’, resulting in a higher STI target opportunity, while certain performance goals were lowered or remained undisclosed.”
3. 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. KPMG, LLP has served more than seven years. No other issues appear significant.
4. Advisory Vote on Frequency of Executive Compensation
Allowing shareholders to express their opinion about senior executive compensation annually, instead of longer options, is necessary to hold the Board accountable. Even the Board agrees, wanting more frequent feedback.
Vote: One Year Frequency
5. Approval of the Guidewire Software, Inc. 2020 Stock Plan
Egan-Jones writes: “After taking into account the maximum amount of shareholder equity … shareholders should not support the passage of this plan as proposed by the board of directors.”
Guidewire Software 2020: Shareholder Proposals
6. Simple Majority Voting
This good corporate governance proposal comes from me, James McRitchie, so of course I voted FOR. Egan-Jones agrees.
Simple majority vote will strengthen the Company’s corporate governance practice … 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..
Shareowners are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements are negatively related to company performance according to What Matters in Corporate Governance by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the Harvard Law.
Supermajority requirements block initiatives supported by most shareowners but opposed by status quo management. The majority of S&P 500 and S&P 1500 companies have no supermajority voting requirements. Additionally, unlike many S&P 500 and S&P 1500 companies, the stockholders of Guidewire Software cannot nominate proxy access candidates, act by written consent, or call special meetings.
The Board agrees and recommends a vote FOR the proposal.
Proxy Insight had not reported votes as of when I last checked. They may have updated by the time I post this.
In looking up a few funds in our Shareowner Action Handbook, I see Calvert FOR all items, except Pay, as discussed above. NYC Comptroller voted Against Dillon and Lego, Pay. They voted FOR Simple Majority Voting.
- Directors: FOR all directors, except 1a) Andrew Brown and 1c) Michael Keller.
- Auditor: AGAINST
- Executive Pay: AGAINST
- Frequency of Say on Pay: One-year
- Stock Plan: AGAINST
- Simple Majority Voting: FOR
Guidewire Software 2020: Issues for Future Proposals
Looking at ProxyInsight for anti-shareholder provisions:
- No right of shareholders to call a special meeting.
- Classified board; directors are only accountable every 3 years.
- No right of shareholders to act by written consent.
- No right of shareholders to proxy access.
Guidewire Software 2020: Mark Your Calendar
To be included in our proxy statement for the 2021 annual meeting, stockholder proposals must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and be received by our Secretary at our principal executive offices by mail at 2850 S. Delaware St., Suite 400, San Mateo, California 94403 no later than July 15, 2021, which is one hundred twenty (120) calendar days before the one-year anniversary of the date on which we first released this proxy statement to stockholders in connection with this year’s annual meeting.
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. The “Lake Woebegone effect,” “where all the children are above average,” works well for society. However, when all CEOs are considered above average, their collective pay spirals out of control. We need to slow the pace of money going to the 1% to avoid becoming a third-world economy. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.