Proofpoint Shareholders Oppose Executive Compensation For 2018

Shareholders sounded the alarm on a plan that resulted in more than $93 million of stock awards being granted to three top Proofpoint executives in 2018, with more than $63 million going to CEO Gary Steele alone.

Shareholders at Proofpoint have taken the extremely rare step of overwhelmingly objecting to the compensation given to the company's top seven executives in the 2018 fiscal year.

During Proofpoint's annual meeting Thursday, only 18.2 percent of shares voted in favor of the cybersecurity vendor's executive compensation plan, with 81.7 percent of shares opposed to a plan that resulted in more than $93 million of stock awards being granted to three top Proofpoint executives in 2018. That included more than $63 million going to company Chairman and CEO Gary Steele alone.

Just 0.08 of shares abstained from the vote. The Sunnyvale, Calif. company's revenue climbed by 35.1 percent in fiscal 2018 to $198.5 million, while GAAP net loss worsened by 224.3 percent to $21.2 million.

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[Related: Proofpoint To Buy Cybersecurity Startup Meta Networks For $120M]

"Mr. Steele was granted additional equity awards by our Board of Directors," Proofpoint wrote in an April 17 proxy filing with the U.S. Securities and Exchange Commission (SEC). "In approving these grants, the Board of Directors considered the performance and growth of the business in 2017, Mr. Steele’s tenure with the organization, and Mr. Steele’s efforts to develop our senior management team."

Steele's total compensation for Proofpoint's 2018 fiscal year, which ended Dec. 31, was $64.7 million, which is higher than every single IT vendor executive examined as part of a March 2017 CRN report with the exception of Google CEO Sundar Pichai.

Proofpoint said in its filing that awarding Steele an additional 665,000 shares in 2018 was appropriate to support his continued retention after taking into account compensation practices among the company's peer group, the competitive industry environment in which Proofpoint operate, and Steele's existing unvested equity awards.

Proofpoint also said it agreed to grant CFO Paul Auvil an additional 85,000 shares in 2018 to further incentivize and support his retention. Auvil's stock awards were worth $10 million last year, and his total compensation was $10.8 million.

In addition, former Proofpoint President and Chief Operating Officer Klaus Oestermann received $19.8 million in stock awards in 2018 as part of a $20.7 million compensation package. Some 20.7 million of Oestermann's restricted stock units immediately vested as part of his Oct. 25, 2018, separation agreement.

Proofpoint did not immediately respond to a request for additional information. The result of the vote was announced after the market closed Friday, and Proofpoint's stock remained unchanged at $108.29 in after-hours trading.

The executive compensation vote is non-binding, meaning that Proofpoint is not forced or compelled to take any specific action.

Still, it is incredibly rare for advisory executive compensation votes to fail, with just 2.2 percent (33 of 1,534) of Russell 3000 companies having their compensation proposals rejected so far this year, according to a June 6 analysis from executive compensation consulting firm Semler Brossy. The Russell 3000 tracks the performance of the 3,000 largest U.S.-traded stocks.

This year's rejection of Proofpoint's executive compensation plan was a dramatic departure from 2016, when the last such vote took place. That year, more than 83 percent of the votes cast approved of the plan. Proofpoint's executive compensation for that year, though, didn't pay any one executive more than $7.9 million.

Shareholders with more than a 5 percent stake in Proofpoint include: Baltimore-based asset management firm T. Rowe Price, which holds a 14.5 percent position in the company; and Malvern, Pa.-based investment advisory firm The Vanguard Group, which holds a 8.7 percent position in Qualys.

Among current executive officers and directors, only CFO Auvil owns more than a 1 percent stake in the company, according to the proxy filing with the SEC.

Proofpoint's compensation committee in fiscal 2018 review compensation data for the company's self-determined peer group, which includes businesses such as Barracuda Networks, Box, FireEye, Fortinet, Imperva, LogMeIn, Splunk, and Zendesk.