Important highlights from upcoming meetings, provided by Glass Lewis’ global research team:
Kohl’s Corporation May 12 AGM
Laboratory Corporation of America Holdings May 12 AGM
New York Stock Exchange
Can’t we all just get along?
Maybe! Engagement and dialogue are crucial. At least that’s the story at Kohl’s, whose meeting was initially set to be contested until the company and dissident reached an agreement, and possibly Laboratory Corporation of America too, which is currently undertaking a review in response to activist pressure. Kohl’s worked with a group of investors holding with an aggregate shareholding of roughly 10% (Macellum Badger Fund, Ancora Advisors, Legion Partners Holdings, and 4010 Partners) who’d submitted a slate of five nominees to the board. The resulting agreement will see two new independent directors nominated by the investor group, and an additional independent director selected by the company and agreed to by the group, appointed at the upcoming AGM.
Meanwhile over at Laboratory Corporation, by February Jana Partners had reportedly built up a $195 million stake, held talks with other investors about improving shareholder value, and nominated directors to the board. In late March the board and management responded, indirectly, announcing the review to address a disconnect between the share price and the company’s value. In turn, Jana withdrew its nominees, pledging support for the review and noting “constructive dialogue” with the company.
Uniti Group Inc. May 13 AGM
NASDAQ
In other reconciliation-related news, Uniti Group has settled ongoing litigation with Windstream, from which it spun off back in 2015. That process involved a sale-leaseback transaction, which nearly ended up forcing both companies into bankruptcy. Hedge fund Aurelius Capital sued Windstream claiming that the transaction violated the company’s bond covenant, and the $310 million judgement forced the telecom company to delist and file Chapter 11. In turn, Windstream sued Uniti. The settlement, which allowed Windstream to exist bankruptcy, was described as mutually beneficial, is supported by Elliott Management (Windstream’s largest creditor, and one of Uniti’s largest shareholders), and may even have restored harmony within the Gunderman family – Uniti CEO Kenneth and Windstream CFO Bob are brothers. With that behind it, Uniti can focus on addressing its internal controls – in its Form 10-K for fiscal year 2020, the company identified a material weakness relating to determination of the carrying value used in the assessment of goodwill impairment. The board is in the process of implementing a remediation plan.
Innoviva, plc May 14 AGM
NASDAQ
At the other end of the spectrum, things remain testy between Innoviva and its largest shareholder, GlaxoSmithKline. Innoviva was spun off from Theravance, Inc. back in 2014 in order to manage respiratory joint ventures with GSK, and all of its revenue comes from royalty agreements with the pharma giant. One of those streams relate to the drug Trelegy, and the operating agreement governing the treatment of the proceeds has been the subject of ongoing litigation and arbitration after activists swayed Innoviva to explore further commercialization and investment opportunities.
While an arbitrator issued an award in Innoviva’s favor at the end of March, GSK publicly opposed the company’s position and even testified against it. The dispute is likely to spill over to the AGM – GSK owns roughly 32% of Innoviva, and at last year’s meeting appears to have voted against the advisory say on pay and re-election of all directors. (They did not oppose the auditor’s ratification) Given the unique circumstances, it’s a situation where shareholders may want to take a closer look before holding the board accountable for its (lack of) responsiveness to last year’s vote results.
Executive Compensation Roundup
Loews Corporation May 11 AGM
Hyster-Yale Materials Handling, Inc. May 12 AGM
MEDNAX, Inc. May 12 AGM
Intel Corporation May 13 AGM
Las Vegas Sands Corp. May 13 AGM
nVent Electric plc May 14 AGM
New York Stock Exchange
Bayerische Motoren Werke AG May 12 AGM
Deutsche Börse
Let’s start with the good. In response to the COVID-19 pandemic, every five-year-old’s favourite company, Hyster-Yale (they make forklifts), suspended both its short- and long-term incentive plan. And that’s it. No replacement supplementary bonus payments. No one-off grants outside of the standard incentive structure. No adjustments to outstanding awards to make up for reduced equity value. They just suspended the short- and long-term incentive plans because paying out awards seemed inappropriate given broader conditions. Really!
And, that’s about it for the good. To be fair, Loews (the insurance company, not the cinema, or DIY store for that matter) did make some positive changes in response to the pandemic as well, with top executives giving up half of their salary and half of their bonus. But about that bonus – despite a consolidated net loss of nearly a billion dollars, executives still achieved a target payout thanks to an extensive series of adjustments. Again being fair, these adjustments were identified early on rather than after the fact, and the board provided an explanation for each one; nonetheless given the scale of the swing, from ($931 million) to $836 million, and the company’s strong reliance on net adjusted income throughout the incentive structure (it also determines long-term awards), shareholders may wish to review closely.
Likewise nVent Electric made extensive changes to its performance metrics in response to shareholder feedback, but its response to COVID was on the whole arguably generous to executives, who saw salaries reduced for half the year but upward discretion applied to their 2020 bonus – and a series of supplemental PSU awards just after the fiscal year end to make up for the negative impact of the pandemic on 2018 and 2019 grants.
It’s a similarly mixed bag at the Las Vegas Sands Corporation, which has eliminated guaranteed annual equity incentive awards and the reliance on a single performance metric for bonuses, and is introducing performance criteria for RSU grants from 2022. On the other hand, CEO benchmarking is at the top range of the company’s peer group despite lackluster performance, the CEO’s employment agreement allows for a accelerated vesting of outstanding awards, and incentives are overwhelmingly based on short-term performance. The company has quite a ways to go to achieve majority support – last year just 33% of shareholders approved the say-on-pay vote, or 14% excluding the shares held by the former CEO.
Intel was much closer to majority support last year, with 49.7% of shareholders voting in favor. And they have provided several reasons to reconsider, including improved disclosure and a revised annual cash bonus structure. On the other hand, the PSU plan was deemed fit for purpose after a review. Perhaps more notably, despite shareholder concerns regarding one-off awards granted in 2019, the company gave its new CEO sign-on awards with a target value of $110 million. Nearly half of that represents make-good in respect of compensation forfeited from his previous employer, for whatever that’s worth (well, $50 million, apparently).
Over in Europe, BMW shareholders will have to consider extensive changes to the company’s remuneration arrangements. On the one hand, there are some clear wins like the introduction of recovery provisions, and the the changes represent a substantial simplification of the incentive structure, which should help with transparency. On the other hand, the complex hybrid model that the company is moving away from included a three-year performance period for cash awards and a four-hear holding periods on matching shares. By contrast, the new structure includes a five-year holding requirement, but performance is only measured over a one-year period. Moreover, there’ll be more at stake – salaries are going up by 8-13% for all management board members, and so are LTI opportunities, from 160% to 217% of salary for the CEO (which is in turn compounded by the aforementioned salary increase). On top of that, the company hasn’t provided full prospective details of the exact metrics on which performance will be evaluated, instead disclosing broad categories and examples, which somewhat limits shareholders’ ability to assess the plan.
And then there’s the ugly. Mednax has failed its say-on-pay vote, badly, for the past two years. Last year 29% of shareholders supported it – up from just 13% in 2019. The results prompted the company to engage with shareholders and make some positive changes, mostly focused on performance metrics. Net revenue is no longer used under the long-term incentive, which is now subject to a gateway precondition related to general and administrative expenses, and ESG metrics have been included in the short-term incentive. But with an ongoing disconnect between pay and performance, more one-off grants and discretionary awards granted in the past year, and COVID response limited to a three-month salary reduction, it’s not clear whether that will be enough to convince a majority of shareholders.