The Advisors' Blog

– Mark Poerio, Paul, Hastings, Janofsky & Walker

Lest anyone think that unfavorable “say on pay” votes will only strike outliers who make massive blunders, take notice of the 55% unfavorable vote that Shuffle Master announced last week. This one is the toughest to explain so far, because the most extraordinary items in Shuffle Master’s summary compensation table relate to interim CEOs who were appointed after the death of the company’s CEO (see the comment below from ISS). In terms of 2010 compensation decisions, there was about a 15% increase in total compensation for continuing executives. Further, although the company’s stock price has fallen about 75% from its $40 high about 5 years ago, it had quintupled since its $2 low in March 2009 — with the last year displaying continued growth (from about $8 to over $10). Interestingly, four institutional investors own about 30% of the company (BlackRock, Wells Fargo, Oppenheimer Funds, and Eagle Asset Management). Perhaps this influenced the outcome.

Notably, the executive compensation disclosure in Shuffle Master’s proxy statement omitted an executive summary, as did those for Jacobs Engineering and Beazer Homes — driving home, again, the importance of being proactive in telling the company’s “story” that justifies the executive compensation decisions being disclosed.

Regarding Shuffle Master’s unfavorable vote, here is the observation posted by ISS: “The vote at Shuffle Master appears to reflect investor concerns over the severance terms in an employment agreement that was reached with interim CEO David Lopez in February. That agreement included a “modified single-trigger” provision that would have allowed Lopez to receive severance if he decided to leave the company within 90 days of a change in control. Many investors object to single-trigger provisions that don’t require executives to actually lose their jobs to receive a payout.”

For tables tracking unfavorable votes and close-calls: see my site, ExecutiveLoyalty.org.