We’re always interested in companies that set a goal, particularly when it’s tied to executive compensation. And then when they fail to meet that goal, they just move the goalpost. After all, why go through the trouble of tying a reward to performance if, once the performance goal isn’t met, there’s no real consequence.
We were reminded of this as we flipped through the proxy that Tivo Inc. filed earlier this week. In particular, this section on pg. 33 caught our attention:
On March 28, 2013, in recognition of the Company’s successful resolution of its litigation with Verizon Communications, Inc. which will result in proceeds to the Company exceeding $250 million, the Board approved an amendment to the Chief Executive Officer’s fiscal year 2010 restricted stock unit grant and fiscal year 2012 restricted stock grant which cover 240,000 and 74,250 shares of Company common stock, respectively, that were originally subject to a risk of forfeiture unless the Company’s per share closing trading price of our stock exceeded a specified stock price for 30 consecutive trading days prior to January 31, 2014 and January 31, 2015, respectively. The amendment revises the performance target for the fiscal year 2012 restricted stock grant to match the same pre-determined stock price as the fiscal year 2010 restricted stock unit grant that is more than 50% above current levels (as of May 15, 2014) (requiring our stock to trade for 30 consecutive days at $17.89 or above) and extends for both the 2010 and 2012 grants the time period within which the performance goal must be achieved to January 31, 2018.
It takes a bit of digging through Tivo’s other filings to figure out what’s really going on here, in part because while Tivo made this change over a year ago, they haven’t done a very good job of disclosing this change to investors.
The first hint came in three amended Form 4s filed on April 1, 2013 (see here, here and here). In a footnote to those amended Form 4s, the company said “Grant was previously reported in Table II. On March 28, 2013, the restricted stock unit award was amended to provide that the restricted stock units will vest upon the company’s stock price attaining a minimum market value for a specified number of consecutive trading days on or prior to January 31, 2018. In the event the performance goal is not attained on or prior to January 31, 2018, the restricted stock units will be forfeited.”
Two days later, on April 3, Tivo followed up with this 8-K, which said that the change was due to its “successful resolution of its litigation with Verizon Communications”. It then waited nearly a whole year — until it filed its 10-K on March 14, 2014 to provide some additional details. But even then, it was still essentially clear as mud, despite several filings and several hundred words devoted to the explanation.
The bottom line is that in order for Rogers to get the first grant of 240,000 shares, Tivo’s stock would have had to close above $17.89 for 30 consecutive days by the end of fiscal 2014. In order to qualify for the second grant of 74,250 shares, Tivo’s stock would have had to trade at $15.22 by Jan. 31, 2015. The problem is that Tivo hasn’t even come close in recent years. The last time Tivo traded anywhere close to that was a brief period in March and April of 2010.
Since walking away from promised compensation isn’t something that most CEOs take lightly, the board simply moved the goal post so that Rogers now has until Jan. 31, 2018 to meet the goal.
Last year, Tivo’s “Say on Pay” proposal was passed by a margin of 60%, compared with 90% the preceding year. We’ll go out on a limb here and say we’d be surprised if the same proposal attracts a majority of investors this year. Of course, even if the proposal is voted down, the company isn’t required to make any changes. We should also note here that Heidi Roizen, who happens to be chair of the compensation committee and thus the person charged with explaining these maneuvers to investors, has decided not to stand for re-election this year.
When we’re not reading SEC filings, we spend a fair amount of time observing various “sports” played by very young children and we can tell you that even 3 year-olds know that moving the goal posts isn’t acceptable behavior.