We’re deep in the midst of proxy season. Last week, for example there were 440 proxies filed. While we don’t read all of them, we continue to view proxies as important insight into how a company — and its board — thinks. As with most filings, this requires a fair amount of reading between the lines.
So when we came across an odd disclosure in the proxy that Google filed shortly after 4 pm on March 28 — that’s the beginning of Friday Night Dump time as footnoted regulars know — we were a bit puzzled. For one, as we tweeted that evening, Google filed its proxy nearly a month earlier than it normally does. We assumed that was related to the long-planned stock split that took place last Thursday, April 3.
But within that proxy was an interesting disclosure on pg. 29 about something the company described as both “regulatory fees” and “regulatory filing fees”. The chart on director compensation disclosed that director John Doerr, the billionaire venture capitalist, has received $1.2 million in “all other compensation” in 2013. A footnote to the chart noted that $560K of that was for “regulatory fees” and another $661,776 was for a tax gross-up to cover the fact that Google paid for those fees.
We’re not tax gross-up experts, but it struck us as odd — and definitely out of line with other gross-ups we’ve seen over the years — that the gross up was bigger than the item being paid for. If any tax gross-up experts want to help us better understand this piece of the mystery, we’re all ears!
Doerr wasn’t the only director who was reimbursed for those fees. Director Ram Shriram also was too. But his “regulatory filing expense” was only $125K. Like Doerr, his tax gross-up also exceeded the amount of the money Google reimbursed: $158,670. On pg. 41 of the proxy, the company disclosed in a footnote that Executive Chairman Eric Schmidt was also reimbursed for $280K in regulatory filing fees. But the proxy didn’t include a break-down on the fees vs. the gross-up.
Over the past week, we’ve reached out to quite a few folks — including Google, which has yet to respond — to try and figure out what those fees could be for. After all, regulatory filing fees is a pretty vague term that could cover a wide range of things. But so far, it remains a mystery.
The best guess from the various people we’ve talked to is that the fees are related to the spin-off. But that raises the question on why only three Googlers were reimbursed, especially in light of the footnote attached to the disclosure, which says, “It is our practice to cover these fees and any associated gross ups for all Googlers and directors.”
That footnote also caught our attention because it appears to be a reversal from Google’s stated policy for at least the past few years. In both the 2012 and 2011 proxies the company stated unequivocally “We do not provide any tax gross-ups for our named executive officers except for gross-ups on relocation benefits.”
Which raises another question: what made them change their mind at a time when most companies are going the opposite way on gross-ups? Should Google shareholders be helping someone like John Doerr out with his tax obligations?
We realize that the total fees here — all told they add up to around $1.8 million — are pocket change to a company of Google’s size. But when a company suddenly starts paying for things it never did before, we think it’s worth paying closer attention to.