The Corporate Library's analysts have raised concerns about Palm, Inc.'s governance practices. To purchase the company's governance rating and risk profile at a steep discount ahead of the annual meeting on September 30, visit our online store. The profile contains:
- Proprietary TCL governance risk ratings and analysis
- Complete CEO compensation review
- Board and individual director profiles and compensation
- Committee structures and independence
- Chronology of key governance events
- Hard-to-find related party transactions
- Current SOX 404 compliance status
- Critical takeover defenses information
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A major area of concern relates to takeover defenses. The company has a classified board, or a board that is elected on a staggered schedule. Classified board structures tend to lengthen the process of a changing control of the board or replacing the majority. As such, this type of structure reduces accountability to shareholders.
Additionally, the company has a multiple share class structure consisting of common stock, Series B Preferred Stock (Series B), and Series C Preferred Stock (Series C). Common stock are entitled to one vote for each share, Series B are entitled to approximately 117.647 votes for each share, and Series C are entitled to approximately 307.692 votes for each share. Together, Series B and Series C are convertible into 53,927,601 shares of common stock. Elevation Partners, L.P. (a private equity firm) are beneficial owners of all the outstanding shares of the Series B and Series C stock. Directors Fred D. Anderson and Roger B. McNamee are co-founders and managing directors of Elevation Partners. The presence on the board combined with the disparate voting rights raises concerns that the interests of public shareholders may be subordinate to that of Elevation Partners.
Another area of concern relates to executive compensation. The company has adopted an annual bonus plan with semi-annual payouts based on semi-annual performance metrics and individual performance. We feel that measuring performance over a period of less than one year may force executives to focus on extreme short-term growth. Furthermore, it creates a situation where executives are awarded bonuses for a successful first fiscal half and a poor second fiscal half. In regards to equity incentives, the company awards restricted stock units (RSUs) for long-term incentive compensation. The awards have a four year vesting period without the requirement for the achievement of performance targets. The disadvantage of restricted stock is that it provides rewards whether the stock price is rising or falling and unless retention clauses are attached to awards (i.e. stock must be retained for a period after vesting), executives can cash out immediately once rewards have vested. In addition, unless there are performance goals tied to restricted stock, it is often not tax deductible under Internal Revenue Code Section 162(m). This is an indicator that compensation practices may not be well-aligned with shareholders interests.
