Aerovironment 2021 annual meeting is September 24, 9AM Pacific Time. To attend, vote, and submit questions during the Annual Meeting visit here. You will also need your 11-digit voter control number and password AVAV2021 (case sensitive). Of course, I recommend voting in advance. To enhance corporate governance and long-term value, vote FOR all items, including Transition to Elect Directors by Majority Vote.
AeroVironment, Inc. designs, develops, produces, delivers, and supports a portfolio of robotic systems and related services for government agencies and businesses. Most shareholders do not vote. Reading through 90+ 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. Every vote counts.
Aerovironment 2021: ISS Rating
From the Yahoo Finance profile page: AeroVironment, Inc.’s ISS Governance QualityScore as of July 1, 2021 is 5. The pillar scores are Audit: 8; Board: 4; Shareholder Rights: 7; Compensation: 5.
Aerovironment 2021: Board Proposals
Egan-Jones Proxy Services recommends For all. Agreed.
2. Ratification of Independent Auditor
Egan-Jones recommends voting For.
3. Advisory Vote on Executive Compensation
Aerovironment’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Wahid Nawabi at $2.5M. I’m using Yahoo! Finance to determine market cap ($2.1B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Aerovironment is a mid-cap company.
According to MyLogIQ, the median CEO compensation at mid cap corporations was $6.4 M in 2020. Pay is substantially below that amount. Aerovironment shares underperformed mid-caps slightly over the most recent one-year time period but substantially outperformed over the last 5 years. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 22.5 to 1.
Egan-Jones Proxy Services found pay aligned with the long-term interest of its shareholders. They recommend voting For. Agreed.
4. 2021 Equity Incentive Plan
Egan-Jones recommends voting For.
Aerovironment 2021: Shareholder Proposal
5. Transition to Elect Directors by Majority Vote
The proposal is from me (James McRitchie) so, of course, I voted in favor. This proposal includes that a director who receives less than a majority vote be removed as soon as a replacement director can be qualified on an expedited basis. If such a removed director has key experience, they can transition to a consultant or director emeritus.
The Board takes no position on the proposal. However, they argue the proposal does not allow enough flexibility “where a stockholder issues ‘withhold’ or ‘against’ votes against one or more individual directors with the objective of encouraging the board of directors to address the underlying policy reasons that gave rise to that voting decision, rather than definitively seeking the departure of the director(s) who did not secure majority support.”
For example, if shareholders vote against the head of the compensation committee because they believe pay is too high, the Board appears to believe they should be able to repair that situation simply by revising pay with no consequences to directors. On the other hand, I believe directors should be held responsible for their actions.
This request should be seen in the context that our Company has a classified board, does not allow shareholders to call special meeting or act by written consent, and does not provide shareholders with the right to proxy access. Our board is locked into an outdated governance structure that reduces accountability to shareholders, increasing the likelihood of stagnation. We should avoid Zombies on Board. The proposal allows plenty of flexibility to find a “qualified” director and even retain a removed director as a consultant or director emeritus without voting power.
Egan-Jones Proxy Services: “A majority-vote standard will transform the director election process from a symbolic gesture to a process that gives meaningful voice to shareholders. They recommend voting For. Agreed.
Proxy Insight reported three votes when I last checked. Calvert voted For all items except Nawabi. CBIS voted against the Auditor and Incentive Plan. Pensionskassen Magistre & Psykologer voted against the Compensation.
In looking up a few funds in our Shareowner Action Handbook, I see the NYC Comproller voted as I recommend below. Norges voted For all items except Nawabi.
- Directors: FOR all
- Auditor: FOR
- Compensation: FOR
- Equity Incentive Plan: FOR
- Elect Directors by Majority Vote: FOR
Aerovironment 2021: Issues for Future Proposals
Looking at insightia for anti-shareholder provisions:
- No requirement to separate CEO and Chair
- Shareholders have no right to call a special meeting
- Directors are not elected by majority vote
- Shareholders have no right to proxy access
- Written consent by shareholders is prohibited
- The board is classified
- Bylaw amendments by shareholders require a supermajority vote
Aerovironment 2022: Mark Your Calendar
Stockholders may submit proposals on matters appropriate for stockholder action at meetings of our stockholders in accordance with Rule 14a-8 promulgated under the Exchange Act. To be eligible for inclusion in the proxy statement relating to our 2022 annual meeting of stockholders, proposals of stockholders must be received at our principal executive offices no later than April 18, 2022 (120 calendar days prior to the anniversary of the date of the proxy statement for our 2021 annual meeting released to stockholders) and must otherwise satisfy the conditions established by the SEC for stockholder proposals to be included in the proxy statement for that meeting. However, in the event that the date of our 2022 annual meeting is more than 30 days before or after the anniversary of our 2021 annual meeting, a stockholder proposal will be timely if received at our principal executive offices a reasonable time before we begin to print and send our proxy materials for the 2022 meeting.
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.