Activision Blizzard
June 14 meeting – vote extended
CEO Bobby Kotick’s total reported compensation was $154,613,318 for 2020 — comprised of more than $149 million in stock awards.
I had planned on writing a blog about overpay at Activision, a company that has been on our annual 100 Most Overpaid CEOs list for the last four years. On Monday, I realized I’d missed my opportunity if I wanted to post a blog before the meeting. The reason I’m here on Thursday writing the blog is because the board took the extraordinary step of keeping voting open solely on the advisory vote on executive compensation. According to the company:
“The independent members of the Activision Blizzard Board believe it is in the best interest of its shareholders to extend the opportunity for shareholders to vote on this important matter, and therefore recommended an adjournment to allow additional time for shareholders to submit proxies with respect to the Proposal. The 2021 Annual Meeting will be reconvened on Monday, June 21, 2021… The sole matter of business before the Reconvened Annual Meeting will be the Proposal.”
It is hard to overstate how unusual this is. The extension itself should be enough to merit voting against the package. It is a bold violation of corporate governance norms and an inappropriate act of power by the corporation. Shareholders, after all, do not have the ability to hold open a meeting if the vote is not going their way.
Nevertheless, the extension does give an opportunity to highlight why CtW Investment Group is urging shareholders to vote against the pay package. In their original filing on June 7, CtW Investment points out that the compensation changes made by the company will be short-lived given the short length of the CEO’s recent contract extension. Specifically, according to CtW, “The CEO’s 2021 equity award will accelerate at maximum payout level leaving most of the compensation reductions to apply to only one full year, 2022, and as such may only cover the equity award for next year.”
With its announcement to extend the meeting, the company made several points, including that:
“Despite some recent claims to the contrary, Activision Blizzard has not repeatedly received low votes on its Say-on-Pay proposals in recent years. In 2019, the Company’s Say-on-Pay proposal received support from 82% of shareholders, and in 2018 it received support from 92% of shareholders.”
Let us take a moment to analyze the above statement.
First, the company is defining “recent” as only two out of the last seven years, and not even including the most recent vote in 2020. Instead, the company refers to only two votes, while ignoring the less than 70% support received in 2014, 2015, 2016, 2017, and 2020. Noticeably, the company did not address the say-on-pay vote in 2020 (the most recent), which received only 57% support from shareholders. This is likely the reason the company didn’t list it in its flailing claim of shareholder support.
Second, the company defined “low” as a relative standard of how poorly its shareholder support has been in the past. A support level of 82% is not considered a high vote of confidence when the majority of pay votes are supported by 95% or more of shareholders. CtW Investment Group filed a letter with the SEC rebutting this point and others made by the company.
Here – from the Insightia website (subscriber-only) – are some of the reasons other shareholders are voting against pay this year:
Avivia voted against because of: Concerns over generosity of arrangements / Inappropriate service contract(s) / Poor disclosure / Poor performance linkage / Lack of performance related pay
Calvert listed its reasons for opposition in 2020 as: “The company's long term incentive compensation is not sufficiently tied to financial performance. The CEO's total pay exceeds 4 times the average NEO pay. CEO pay exceeds the 75th percentile of peers and the company's performance is below the 75th percentile of the peer group.”
Notice that each of these investors mention what some are now calling the quantum of pay – the sheer extraordinary size of compensation packages. The company met with shareholders after low votes in prior years and did make specific changes. However, as so often happens, the company made relatively small changes affecting only one component of compensation. In the end, the fundamental issue of overpay remains, and shareholders may be recognizing that sometimes excess is simply excess. Too much is too much, no matter how it is dressed up and defined.
Kotick has been CEO of Activision Blizzard for over 30 years. He owns or has the right to acquire 3,564,360 shares that trade at nearly $100 per share. If $3 billion in holdings and all the cash he has accumulated are not enough to motivate him, what would it take? I would welcome a discussion about where the line should be drawn. Activision Blizzard would like to delay that discussion and have it in private.