October 20, 2011
Second Time’s Not a Charm: Hemispherx Fails to Win Say-on-Pay Again
–Ted Allen, ISS
Hemispherx Biopharma, a micro-cap biotech firm based in Philadelphia, has failed to win majority support (based on votes present) for its executive compensation practices for the second time. The company, which restated its 2009 results, conducted its 2011 annual meeting on Oct. 13 after holding its 2010 meeting in March 2011. Hemispherx is the first issuer with a failed Dodd-Frank Act advisory vote to face shareholders again.
At the most recent meeting, as reported in this Form 8-K, the company said it received 44.1 percent support for its pay practices, while there was 37 percent opposition and 18.9 percent in abstentions. The company pointed out that there was “very little stockholder voting on this resolution, with only 20.7% of the outstanding shares eligible voted.”
The company’s CEO, William A. Carter, received a 72 percent base salary increase in 2012, according to the proxy statement, while the company has posted negative one-, three-, and five-year total shareholder returns. In its proxy statement, the company pointed out that the CEO agreed to a 50 percent reduction in base salary during the first five months of 2009. At the same time, the CEO’s 2010 salary and fees still represent a significant increase from the 2008 level, according to the ISS report on the company.
The company also said that its compensation committee had acted “to better align the compensation options with our stockholders’ interests in supporting long-term value creation.” Hemispherx pointed out that it renewed expired stock option grants for a 10-year term at the same exercise price of the original option grants, rather than at current market price, and the company said that future non-executive employee compensation could include company stock.
While Hemispherx shareholders used the advisory vote again to express concerns over pay, most of them did not withhold support from directors. The directors all were reelected by more than a 8-1 margin. Some institutional investors have said they may take a “red card/yellow card” approach and withhold support from directors in 2012 if companies fail to adequately address significant opposition during 2011 advisory votes.