Pegasystems 2021

Pegasystems 2021: Proxy Access

Pegasystems 2021 annual meeting is June 22, 7 AM Pacific Time. To attend, vote, and submit questions during the Annual Meeting visit here. To participate, you will need the 16-digit control number provided on your proxy card or voting instruction form. Of course, I recommend voting in advance. To enhance long-term value. Vote AGAINST Gyenes, Jones, Trefler, and the Auditor; FOR Proxy Access. Since a majority of Pegasystems is owned by insiders, our votes may be less consequential but they do give the Board a sense of what unaffiliated shareholders want and that is important.

Pegasystems Inc. develops, markets, licenses, hosts, and supports enterprise software applications in the United States and much of the world. Most shareholders do not vote.  Reading through 40+ pages of the proxy takes time but 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 25 years and trust my judgment, skip 7 minutes of reading. See how I voted my ballot. Voting will take you only a minute or two.

I voted with the Board’s recommendations 50% 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.

Pegasystems 2021: ISS Ratings

Pegasystems Inc.’s ISS Governance QualityScore as of April 30, 2021, is 5. The pillar scores are Audit: 2; Board: 6; Shareholder Rights: 3; Compensation: 8.

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 Board and Compensation.

Pegasystems 2021: Board Proposals

1. Directors

Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, and Larry Weber have been nominated. Since directors who serve for much longer than 10 years are of questionable independence, I voted against Gyenes, Jones, and Trefler. It is also something of a conflict of interest to hold the position of CEO and Board Chair at the same time, so I would also vote against Mr. Trefler on that basis as well. Additionally, as Calvert notes, “The board comprises fewer than two people of color or is less than 40% diverse overall.” I share that concern.

Vote: AGAINST Gyenes, Jones, and Trefler.

2. Executive Compensation

Pegasystems Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Alan Trefler at $5.9 M. I’m using Yahoo! Finance to determine market cap ($9.8 B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Pegasystems is a mid-cap company.mylogiq_logo

According to MyLogIQ, the median CEO compensation at mid-cap corporations was $6.4 M in 2020. CEO Alan Trefler at $5.9 M, so lower than that amount. Pegasystems shares outperformed mid-caps over the most recent two- and five-year time periods but underperformed during the latest one-year time period. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 41 to 1.

Vote: FOR.

4. Independent AuditorEgan-Jones

Deloitte & Touche LLP has been the auditor for 21 years. Many, such as Egan-Jones, argue auditors become captured and lose independence after 7 years. Some believe capture takes longer but 21 years is a long time.

Vote: AGAINST

Pegasystems 2021: Shareholder Proposals

3. Shareholder Proposal Regarding Proxy Access

This good corporate governance proposal comes from me, James McRitchie, so of course I voted FOR.

In 2002 I petitioned the SEC to allow proxy access proposals. It took 8 years for the SEC to finally agree and adopt a rule allowing shareholders to request it at individual companies.  By now, 77% of S&P 500 companies have now adopted and proxy access is spreading to smaller companies like Pegasystems.

Yes, the majority of shares at our company are held by insiders. However, Pegasystems could signal to the market that it is open to input from shareholders (beyond insiders and 13F filers). It is open to a wider ownership base. The best way to do that is by adopting proxy access.

Proxy Access in the United States: Revisiting the Proposed SEC Rule, a cost-benefit analysis by CFA Institute, found proxy access would “benefit both the markets and corporate boardrooms, with little cost or disruption.” It would do that by raising US market capitalization by up to $140.3 billion. Public Versus Private Provision of Governance: The Case of Proxy Access found a 0.5 percent average increase in shareholder value for proxy access targeted firms.

Proxy access creates a more competitive environment for directors. They know if they fail, shareholders can replace them. I do not expect that need to arise at Pegasystems but having proxy access in the toolbox is a good idea and it lets shareholders know directors are confident in their electability. Proxy access increases the value of your shares by keeping directors focused on shareholders.

Vote: FOR

Pegasystems 2021 CorpGov RecommendationsProxy Insight

Proxy Insight reported no votes when I last checked. They used to be much better at collecting this information but I suppose the number of funds reporting in advance has declined.

In looking up a few funds in our Shareowner Action Handbook, I see Calvert vote Against all directors except the combined CEO/Chair Alan Trefler because “The board comprises fewer than two people of color or is less than 40% diverse overall.They voted for both proxy access (enhanced shareholder rights) and the auditor. NYC pensions voted Against Jones, Ledingham, Rowlands, and Weber, as well as Pay; For the rest. Norges voted For all items. Trillium did not report. I expect they do not own Pegasystems.


CorpGov Votes:

  1. Directors: AGAINST Gyenes, Jones, and Trefler.
  2. Executive Pay: FOR
  3.  Shareholder Proxy Access: FOR
  4. Auditor: AGAINST

Pegasystems 2021: Issues for Future Proposalsinsightia

Looking at insightia for anti-shareholder provisions:

  • No requirement to separate CEO and Chair
  • The tenure of Chair and directors exceeds the average, which likely reduced independence.
  • No proxy access.
  • The threshold of 40% to call a special meeting is too high, given that many at 10% or 15%.

Pegasystems 2022: Mark Your Calendar

To be eligible for inclusion, we must receive your shareholder proposal intended for inclusion in the proxy statement for the 2022 Annual Meeting of Shareholders at our principal corporate offices in Cambridge, Massachusetts as set forth below no later than December 30, 2021.

Any proposals or notices should be sent to:
Pegasystems Inc.
One Rogers Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary

Related Posts

Pegasystems 2020: Simple Majority Vote

Warnings

Be sure to vote for each item on the proxy. Any items left blank get automatically 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.” Peer groups are often chosen by aspiration. The “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average.” However, corporations live in the real world. All CEOs are above average. Ignoring that fact partly explains why their collective pay spiraling out of control. We need to slow the pace of money going to the 1% or our economy will fail to serve the majority. 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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