Proxy pressure can turn up the heat on even the largest companies these days – witness Pitney Bowes Inc., whose CEO Murray Martin agreed recently to forfeit $2 million in stock-based compensation.
So imagine the angst at the comparatively small FuelCell Energy Inc. after discovering its own equity compensation structure had been “red flagged” by Institutional Shareholder Services Inc. heading into proxy season, with shareholder approval of a new equity compensation plan on the line.
A unit of New York City-based MSCI Inc., ISS examines a wide range of factors related to corporate governance – to include how much stock companies grant as part of their compensation plans – and makes recommendations to shareholders on whether to vote for or against corporate proposals during proxy season.
Proxy votes carry increasing weight. In the case of Stamford-based Pitney Bowes, after stockholders did not approve an advisory resolution on executive compensation this past spring, the mail services giant has been discussing its policies with them. In addition to forfeiting the “key employees’ incentive plan” award he received in 2011 that vests in December 2013, Martin agreed to a reduction in his annual incentive target for this year from 165 percent of his base salary to 130 percent.
At FuelCell, the updated ISS red flag arrived late last year even as FuelCell was readying to ask shareholders to authorize it to issue 5 million shares of new stock to issue as part of the Danbury-based company’s equity incentive plan.
FuelCell’s fiscal year ends Oct. 31, and the company has its annual meeting typically in early April.
“We first noted in December of last year that the ISS GRId score had flagged our compensation practices as a ‘high risk’ area,” said Darrell Bradford, vice president of human resources at FuelCell. “Although we were confident that our compensation programs and practices were well-aligned with shareholder interests, ISS periodically changes their criteria – for example when new legislation comes into play, or as best practices emerge. As a result of the change in the rules, we found ourselves slipping into the red zone.”
Bradford took the initiative in addressing the ISS score, given the importance of equity compensation in FuelCell energy’s total compensation package, particularly in attracting and retaining executives.
Out of 41 items in total, FuelCell found that ISS had identified about 10 different points, including language in its stock plan description and executive change-in-control provisions that could be improved. With guidance from its proxy advisory firm, FuelCell tightened the language in its equity compensation program and executive employment agreements.
FuelCell found its way into ISS’ green zone with less than two weeks to go before its annual meeting, with ISS flipping its recommendation in favor of FuelCell directors up for election as well the equity proposal.
It was a remarkable-enough feat that the Society for Human Resources Management’s southern Connecticut chapter made Bradford one of its three “HR leaders of the year” locally, along with Pitney Bowes Inc.’s Susan Johnson who leads executive succession and diversity strategies; and John Vitale of Maxum Petroleum Inc., which ironically is shutting down its Greenwich office after its sale to Pilot Flying J.
Months after hitting the green zone, Bradford is still flying high from ISS experience.
“We were literally monitoring the voting on a daily basis in days leading up to the annual stockholder meeting,” Bradford said. “We saw a dramatic swing in favorable votes as a result of the improved … score.”