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In the wake of recent top-level management changes, shareholders of leading point-of-sale terminal maker VeriFone Systems Inc. last week voted overwhelmingly against the company’s executive-compensation plan. While the ballot was advisory, observers say it is noteworthy because stockholders rarely reject the pay plans corporate boards of directors now present for non-binding votes.
“This is a big signal, it’s showing discontent,” says Prof. Cindy A. Schipani of the Stephen M. Ross School of Business at the University of Michigan. “They have something to say here.”
Gil Luria, an equity analyst who follows VeriFone for Los Angeles-based Wedbush Securities, says he currently covers 17 publicly traded companies, and he’s covered more in the past. “I have to say this is the first time I’ve seen this,” he says.
Shareholders, however, may not have turned thumbs down on the pay plan for VeriFone’s new management team headed by interim chief executive officer Richard A. McGinn as much as they voted against the old regime led by former CEO Douglas G. Bergeron. Bergeron resigned in March after a series of problems came to a head. VeriFone’s 2012 fiscal year ended last Oct. 31, and the compensation plan presented in the proxy statement for the company’s June 20 annual meeting was the one that covered Bergeron, former chief financial officer Robert Dykes, who retired in February, and three other executives.
Thus, Luria sees the vote not so much about pay as a message from shareholders to the new leaders to get VeriFone back on a solid footing. “The stock has done very poorly, especially this year, but certainly over the past couple of years,” he says. “It’s not necessarily lack of confidence in who’s there right now. At the same time, they [stockholders] want to make sure … that going forward, the interests of management are aligned with shareholders.”
A spokesperson for San Jose, Calif.-based VeriFone declined to comment on the vote and instead referred Digital Transactions News to a Securities and Exchange Commission filing VeriFone issued reporting the annual-meeting results. That filing does not include any commentary about the compensation vote, which shows a 79% margin for the naysayers. Excluding abstentions and broker non-votes, the vote was 66.4 million shares against the compensation plan and only 17.4 million shares for it.
Such votes began after Congress in 2010 passed the Dodd-Frank financial-reform act, a sweeping law that includes a “say-on-pay” provision for public companies. Under SEC rules implementing say-on-pay, corporate boards must present the compensation plans for named executives to a non-binding shareholder vote at least once every three years, according to the Society for Human Resource Management.
Schipani, who studies corporate-governance issues, says Dodd-Frank’s say-on-pay provision is a compromise that while not allowing stockholders to actually veto compensation plans does enable them to express their sentiments, either for or against. “That’s the one vote that they have that signals to the powers that be,” she says.
Bergeron’s departure came after the company reported problems delivering product on time and possible violations of the U.S. trade embargo on Iran. The board appointed McGinn, its chairman, as interim CEO, and he quickly installed a new senior-management team.
Bergeron made a total of $10.5 million in fiscal 2012, including $800,000 in salary and most of the rest in stock-based compensation, according to the proxy statement. That was down from $14.2 million in fiscal 2011. Dykes made a total of $1.98 million last year, including $430,000 in salary. Jeff Dumbrell, the executive vice president who formerly headed VeriFone’s Europe-Middle East-Africa-Asia business, earned $1.52 million in 2012, some $350,000 of that from salary.
Under his separation agreement, VeriFone is paying Bergeron $1 million a year for two years and he can continue receiving his medical benefits. He also continues to vest in equity-based awards until March 2014.
