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THOUGHTFUL PAY ALERTS

“Say on Pay” at the Bay Area Tech 120 – A Final Look at 2015

January 11, 2016

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Four Things That Technology Companies Should Know About the 2015 Say-on-Pay Votes

  • 2015’s Results Were Consistent with Prior Years’ Patterns. Consistent with the past four years, the majority of Bay Area Tech 120 companies saw their shareholders approve the compensation of their named executive officers. Of the 92 technology companies that held a Say-on-Pay vote in 2015, 92.4% registered a favorable vote, while seven (7.6%) had their vote fail. Consistent with the results experienced by the Russell 3000, nearly two-thirds (61 of 92) of the Bay Area Tech 120 companies received more than 90% support. Only 11 Bay Area Tech 120 companies received less than 70% support.
  • The Level of Support in 2015 was Consistent with Prior Years’ Support Levels. The 74 Bay Area Tech 120 companies that held their fifth Say-on-Pay vote in 2015 received average support of 89.0%, compared to 88.4% average support for the same group of companies in 2014, 87.2% average support in 2013, 87.1% average support in 2012, and 87.2% average support in 2011 – a slight increase of approximately 2% since the Say-on-Pay requirement was enacted.
  • The Say-on-Pay Vote for Each Year Stands on Its Own Merits. Even with the relative year-over-year stability seen from most companies, shareholder support for a Say-on-Pay proposal can change almost overnight. Five Bay Area Tech 120 companies that received more than 90% support in 2014 saw this support drop by at least 20% in 2015. Similarly, seven Bay Area Tech 120 companies that received less than 70% support in 2014 saw support increase by an average of nearly 39% in 2015.
  • Companies That Fail Say-on-Pay Vote Can Reverse This Result in the Following Year. Three of the five Bay Area Tech 120 companies that failed their Say-on-Pay Vote in 2014 saw support increase by an average of nearly 54% in 2015.

Now that 2015 has drawn to a close, it’s time to take a look at that year’s results for the non-binding shareholder advisory vote on the compensation of a company’s named executive officers (the so-called “Say-on-Pay Vote”) required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. 2015, the fifth year of Say-on-Pay, was notable for the high number of companies in the Bay Area Tech 120 that received over 90% support for their Say-on-Pay proposal (66.3%) as well as the number of companies – 11 (or 12.0%) – that either failed the vote or registered significant opposition from shareholders.

As we have done since 2011, Compensia monitored the Say-on-Pay Vote results for the most prominent technology companies headquartered in the San Francisco Bay Area (primarily in Silicon Valley). We call this group, which consist of the largest companies in the computer/hardware, internet/software, and semiconductor sectors (but excluding companies that conducted their initial public offering in 2015), the Bay Area Tech 120. (The companies comprising the Bay Area Tech 120 are listed on the Exhibit to this article.)

This Thoughtful Pay Alert summarizes our findings as of December 31, 2015, based on the results of their 2015 annual meeting of shareholders as disclosed by the Bay Area Tech 120 companies. These results are reflected in the Exchange Act reports of these companies as filed with the Securities and Exchange Commission.

For the Say-on-Pay results of companies in the life sciences sector, see our companion Thoughtful Pay Alert, “Say on Pay” at the Life Sciences 80 – A Final Look at 2015.

Companies Reviewed

As of December 31, 2015, 109 of the companies in the Bay Area Tech 120 (90.8%) had held their 2015 annual meeting of shareholders and reported the results of the various votes conducted at the meeting. With respect to the remaining 11 companies, nine were either acquired during the year or are in the process of being acquired (and thus held no regular annual meeting of shareholders), one has yet to hold its annual meeting (Finisar), and one (Intuit) will hold its annual meeting of shareholders in January.

Of the companies that have held an annual meeting of shareholders, 92 conducted a Say-on-Pay Vote at the meeting. The remaining 17 companies either have decided to hold their Say-on-Pay Vote on a biennial or triennial basis (nine companies) and, therefore, held no vote in 2015 or qualified as “emerging growth companies” as established under the Jumpstart Our Business Startups (“JOBS”) Act (eight companies) which are not required to conduct a Say-on-Pay Vote.)

Companies with 2015 Say-on-Pay Votes

Of the 92 companies holding Say-on-Pay Votes in 2015, three companies held their first shareholder advisory vote on executive pay (Ambarella, Ruckus Wireless, and Workday), six companies held their second shareholder advisory vote on executive pay (including three companies – Imperva, InvenSense, and Pandora Media - that elected in 2012 to hold triennial votes), three companies (Palo Alto Networks, Splunk, and Yelp) held its third shareholder advisory vote, and six companies (Dolby Laboratories, Ellie Mae, Extreme Networks, Jive Software, Sanmina, and Zynga) held their fourth shareholder advisory vote. The remaining 74 companies held their fifth Say-on-Pay Vote.

Bay Area Tech 120 Companies Holding

2015 Say-on-Pay Results

Average Level of Support

Overall, the average level of support for the 92 Bay Area Tech 120 companies conducting Say-on-Pay Votes in 2015 was 87.5%. In the case of the 74 companies which held their fifth Say-on-Pay Vote in 2015, average support was nearly 89.0%, compared to 88.4% average support for the same group of companies in 2014, 87.2% average support in 2013, 87.1% average support in 2012, and 87.2% average support in 2011 – a variation of less than 2% over this entire period.

Actual Level of Support

The actual support for the 92 Bay Area Tech 120 companies conducting Say-on-Pay Votes in 2015 is shown on the next page.

While the decided majority of companies continued to receive strong support for the compensation of their named executive officers in 2015, it is notable that 47 of these companies received 95% or more support from their shareholders, including five companies that received near unanimous approval of the executive compensation program with 99% or more of the votes cast on the Say-on-Pay proposal voted in favor of the proposal.

Bay Area Tech 120 Companies Level of Support

Unsuccessful Say-on-Pay Proposals

Seven Bay Area Tech 120 companies, InvenSense, Marvell Technology Group, Oracle, Palo Alto Networks, Shutterfly, TiVo, and Ultratech, failed to receive a majority of the votes cast in favor of their Say-on-Pay proposal in 2015.

In the case of InvenSense, 48.7% of the votes cast supported the company’s named executive officer compensation, while 51.3% of the votes were cast against (or abstained on) the proposal. This was only the company’s second Say-on-Pay Vote, following an initial vote in 2012 when 99.5% of the votes were cast in favor of its executive compensation program.

At Marvell, 43.9% of the votes cast supported the company’s named executive officer compensation, while 56.1% of the votes were cast against (or abstained on) the proposal. This follows a vote of 60.1% for the proposal and 39.9% against (or abstained on) the proposal in 2014 – a decrease of 16.2% of the votes cast on the Say-on-Pay Vote.

In the case of Oracle, 48.1% of the votes cast were voted in favor of the company’s named executive officer compensation, while 51.9% of the votes were cast against (or abstained on) the proposal. This was a slight increase in support from 2014, when approximately 46% of the votes cast were voted in favor of the executive compensation program, but still less than majority support.

At Palo Alto Networks, 36.3% of the votes cast supported the company’s named executive officer compensation, while 63.7% of the votes were cast against (or abstained on) the proposal. This follows a vote of 68.1% for the proposal and 31.9% against (or abstained on) the proposal in 2014 – a decrease of 31.8% of the votes cast on the Say-on-Pay Vote.

At Shutterfly, only 21.9% of the votes cast supported the company’s named executive officer compensation, while 78.1% of the votes were cast against (or abstained on) the proposal. This follows years of only 50.1% support (in 2014) and 54.6% support (in 2013) on the company’s Say-on-Pay proposal.

In the case of TiVo, 40.0% of the votes cast supported the company’s named executive officer compensation, while 60.0% of the votes were cast against (or abstained on) the proposal. This follows a vote of 93.2% for the proposal and 6.8% against (or abstained on) the proposal in 2014 – a decrease of 53.2% of the votes cast on the Say-on-Pay Vote.

Finally, at Ultratech, only 15.2% of the votes cast on the company’s Say-on-Pay proposal were voted in favor of the compensation of its named executive officers, with 84.8% of the votes cast on the proposal voted against their compensation. In 2014, the company received just over 80% support for its named executive officer compensation (80.1%). This represents a decline in support of nearly 65%, year over year.

Year-Over-Year Vote Fluctuations

Of the 74 companies that have now held five votes, 32 received more support (an average of 9.2%, with a median increase of 2.0%) in 2015 compared to 2014, while 40 saw support for their executive compensation program decline (by an average of 9.8%, with a median decrease of 2.2%). Two companies (Equinix and VMware) received the same level of support in 2014 and 2015. As has been the case each year since 2012, a notable number of companies experienced a significant vote swing on their Say-on-Pay proposal between 2014 and 2015. Ten companies saw support for their executive compensation program decrease by over 20% in a single year.

Companies That Received Less Than 70% Support in 2014 Generally Improved in 2015

Seven of the 15 companies that received less than 70% support in 2014 increased their support in 2015; almost universally by a significant margin – an average of 38.7%. For example, Electronic Arts improved its vote result by nearly 44% from 2014 to 2015, while Cavium saw the support for its executive compensation program increase by approximately 36% during the same period (from 63.1% in 2014 to 98.9% in 2015). Similarly, Splunk, which failed the Say-on-Pay Vote in 2014, improved the support for its named executive officer compensation from 38.8% in 2014 to 98.4% in 2015 – an increase of nearly 60%. Further, Applied Micro Circuits, which failed its Say-on-Pay Vote in 2014, improved the support for its named executive officer compensation from 33.2% in 2014 to 90.3% in 2015 – another increase of almost 60%.

Of the remaining eight companies, three (Avago Technologies, Inphi, and Immersion) did not hold a Say-on-Pay Vote this year and two (Informatica and Riverbed Technology) were acquired. As described above, the other three – Marvell Technology Group, Palo Alto Networks, and Shutterfly – failed their 2015 Say-on-Pay Vote.

Most Companies that Received More Than 90% Support in 2014 Remained Stable in 2015

As in prior years, numerous Bay Area Tech 120 companies (37) that received more than 90% support in 2014 saw support for their executive compensation program decline in 2015. The average amount of this decline (6.8%) was largely influenced by the fact that five companies experienced decreases in excess of 20% (including one that declined by over 53%).

Just as notable, 19 of the Bay Area Tech 120 companies that received more than 90% support in 2014 actually saw this support increase in 2015 (by an average of 1.9%) – a truly remarkable result given the limited amount of room to garner additional votes in favor of their executive compensation program. In fact, one company – Fortinet – saw support for its executive compensation program increase from 99.2% to 99.5%. Further, of the companies that saw support for their Say-on-Pay proposal decrease in 2015, the decline for 19 of these companies was less than 2.0%.

2014 vs. 2015 Vote Results

Three Companies with Failed Vote in 2014 Register Success in 2015

Three of the five companies in the Bay Area Tech 120 that failed their Say-on-Pay Votes in 2014 – Applied Micro Circuits, Rovi, and Splunk - saw a significant increase in the support of their executive compensation program with 90.3%, 84.1%, and 98.4% of the votes cast on their Say-on-Pay proposal voted in favor of the compensation of their named executive officers – an increase of nearly 54%, on average, from their 2014 votes.

Final Observations

While the experience of the Bay Area Tech 120 companies with the Say-on-Pay Vote continues to track the results from prior years, we note that, for nearly half of the Bay Area Tech 120, this vote has begun to resemble a routine event with support firmly lodged in the 90% range. Thus, as long as a technology company’s financial performance (as measured by total shareholder return) is in the top half of its industry sector, and absent a specific problematic compensation decision or policy, it isn’t likely to face any significant issues in obtaining a favorable Say-on-Pay Vote. Of course, an integral piece of this equation is an effective shareholder engagement philosophy. By identifying potential concerns well in advance, technology companies should be able to address these matters before they ripen into a full-fledged problem and threaten continued support for your executive compensation program.

Need Assistance?

Compensia has extensive experience in helping companies draft the executive compensation disclosure in the proxy materials for their annual meetings of shareholders and analyze the potential impact on the Dodd-Frank Act shareholder advisory votes on their executive compensation programs. If you would like assistance in preparing your executive compensation disclosure for the required shareholder advisory vote on executive compensation, or if you have any questions on the subjects addressed in this Thoughtful Pay Alert, please feel free to contact Mark A. Borges.

Download pdf to read Exhibit A: Bay Area Tech 120 – 2015 Shareholder Advisory Vote on Executive Compensation »


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