Proxy Voting Policy

Philosophy

This policy is designed to help retail investors make informed proxy votes on the proposals most commonly seen in annual meetings: executive compensation (Say on Pay) and director elections. The goal is to drive long-term corporate performance and protect shareholder value. Analyses are based on objective, data-driven criteria — not political, social, or ideological considerations.

1. Say on Pay (Executive Compensation)

Default Vote: YES

Vote YES unless one or more of the following conditions is met.

Benchmarking

Compensation is benchmarked independently by title × sector × market cap band. Company-selected peer groups from the proxy statement are not used as the primary benchmark, as companies frequently cherry-pick larger peers to inflate reference points.

Aggregate Named Executive Pay

Individual Executive Threshold

• Any named executive >+25% above their individual benchmark → No
• CEO threshold is lower: >+20% above benchmark → No
  • The CEO typically has outsized influence over the compensation committee, making outlier CEO pay a governance concern independent of aggregate pay

Pay Mix

At least 50–60% of total compensation for senior executives should be variable/performance-based (equity awards, performance bonuses, LTIPs). If fixed salary exceeds 40% of total compensation, that is a No or requires clear justification.

Additionally, evaluate the quality of incentive metrics:

• Favor long-term metrics (3–5 year TSR, ROIC, sustainable revenue/earnings growth)
• Flag plans based on easily manipulated short-term EPS targets
• Flag plans with no clear, measurable performance conditions

Pay Level vs. Pay-for-Performance: Two Separate Questions

Evaluating Say on Pay requires answering two distinct questions, each with different logic:

Question 1: Is the pay level appropriate?
Benchmark fixed/base compensation by title × sector × market cap band (see thresholds above). Stock performance is not a factor here — a CFO at a $2B company should be paid like a CFO at a $2B company regardless of recent stock performance. If the stock has performed poorly and the company has dropped to a lower market cap band, the benchmark itself will already reflect lower compensation expectations.

Question 2: Is the incentive pay earned?
This is where stock performance matters. The entire purpose of variable compensation is to align executive outcomes with shareholder outcomes. If a company underperforms its sector peers while executives receive above-benchmark bonuses and equity grants, the incentive structure is failing.

Apply a pay-for-performance alignment check to variable/incentive compensation:

The key principle: stock performance does not determine whether a role is worth a given salary. It does determine whether above-benchmark incentive pay was justified.

Clawback Policy

If the company lacks a meaningful clawback policy (ability to recoup compensation in cases of financial restatement or executive misconduct), this is a negative factor. Post-Dodd-Frank, clawbacks are required for listed companies, but quality varies significantly.

Prior Say on Pay Vote Response

If the company received <70% shareholder support on Say on Pay in the prior year and made no visible changes to compensation structure, vote No. Failure to engage with shareholders on a significant vote signals poor governance.

Equity Dilution

Total equity grants to named executives as a percentage of shares outstanding should be reviewed. Annual dilution >2–3% from executive equity awards is a red flag.

2. Director Elections

Default Vote: YES

Vote YES unless one or more of the following conditions is met.

Overboarding

• Non-executive director holds 4 or more public company board seats → No
• Sitting CEO (of any public company) holds 2 or more outside public board seats → No
  • A sitting CEO's primary fiduciary obligation is to their own company's shareholders; excessive outside commitments undermine that

Stock Performance During Tenure

Benchmark: Use the company's own disclosed compensation peer group (typically 15–25 companies listed in the proxy under "Compensation Peer Group," "Comparator Group," or similar heading) as the primary benchmark. Where no peer group is disclosed, fall back to the sector ETF benchmark (e.g. XLK for Technology, XLI for Industrials).

TSR underperformance trigger — applies when the company's 3-year TSR underperforms the peer group median by more than the threshold below. The threshold is based on the company's absolute 3-year TSR to distinguish between genuine value destruction and underperformance of a peer group that experienced an unusually strong run.

Apply the trigger only for directors whose tenure meaningfully overlaps with the underperformance period.

Supplementary context:

• 5-year TSR is provided as supplementary data. If 5-year underperformance is below the threshold (suggesting recent deterioration in a longer positive track record), note this as a mitigating factor in the rationale — but do not override the 3-year trigger.
• Directors who joined after underperformance was already established: if data indicates the stock began materially underperforming before a director joined, acknowledge this in the rationale as mitigating context. It does not exempt the director from the trigger, but should be stated clearly so that shareholders can weigh accountability appropriately.

Additional notes:

• TSR (total shareholder return, including dividends) is the preferred metric; price return is an acceptable proxy
• An industry-wide decline that the company tracked is not a red flag — the peer group comparison already controls for this
• Directors who joined within the past 24 months are exempt from the TSR trigger — this gives newer directors reasonable time to contribute to a turnaround before being held accountable for prior-period performance
• Directors who joined more than 24 months ago but less than 3 years ago: apply the trigger proportionally — flag but do not automatically vote No if their tenure covers less than half the underperformance period
• Apply the No vote individually per director based on their tenure, not as a blanket against the full slate
• Company officers (including the CEO) who also serve as directors are subject to the same TSR trigger as all other directors. A No vote on an executive director under this trigger is independent of the Say on Pay recommendation — it is possible (and correct) to vote AGAINST a CEO as a director while voting FOR on Say on Pay, if the pay program structure passes the policy screens separately.

Director Qualifications

Director qualifications are evaluated purely on skills, experience, and demonstrated ability to drive corporate performance. Political, social, or ideological factors are not criteria.

A No vote may be warranted if:

• The director has no apparent relevant experience for the company's industry or stage
• The company does not disclose a board skills matrix (absence of transparency is itself a flag)
• Audit committee members lack demonstrable financial expertise (SEC requirement; look for CPA, former CFO, or equivalent)
• The director's biography (as captured in our bio data) reveals no clear basis for their appointment

Board Independence

• A director classified as non-independent who serves on the audit or compensation committee → No
• Independence designations that appear inconsistent with disclosed relationships should be flagged for review

Familial Relationships

A director with a familial relationship to senior management (especially the CEO or founder) → No

• Proximity to top management is the key concern; familial relationships with lower-level employees are less material
• If the board designates such a director as "independent," question the rationale

Meeting Attendance

Director attended <75% of board and committee meetings in the prior year → No

• Proxies are required to disclose attendance; poor attendance is a straightforward signal of inadequate engagement

Director's Other Board Affiliations

If a director serves on other public company boards where the company has significantly underperformed its sector/market cap peers, this is a negative signal about the director's ability to contribute to performance outcomes. Weight this alongside other criteria rather than as a standalone trigger.

3. Auditor Ratification

Default Vote: YES

Vote YES unless one or more of the following conditions is met.

Non-Audit Fee Ratio

Non-audit fees are fees paid to the auditor for services other than the core audit (e.g. tax advisory, consulting, other advisory work). A high non-audit ratio signals a financial relationship that could compromise the auditor's independence from management.

Notes:

• Use the most recent completed fiscal year's disclosed fee data
• Audit-related fees (e.g. review of interim financial statements, due diligence on acquisitions) are sometimes grouped separately from non-audit fees; include them as non-audit for this ratio if they are not part of the statutory audit scope
• A single large year driven by a one-time transaction (e.g. an acquisition) may warrant a softer reading — note the context but do not waive the trigger automatically

Auditor Tenure

Long auditor relationships raise concerns about independence and professional skepticism. An auditor that has worked with the same management team for decades may be less willing to challenge aggressive accounting treatments.

• Auditor tenure ≥25 years → No, unless the audit committee provides a specific and compelling rationale for continued engagement (e.g. exceptional audit quality metrics, recent lead partner rotation, or active multi-year rotation plan disclosed in the proxy)
• Tenure is typically disclosed in the proxy; if tenure is not disclosed or cannot be determined, vote FOR — do not assume a No vote. Note the absence of tenure disclosure as a minor negative factor, but the tenure trigger requires confirmed data to fire.

Material Financial Restatements

If the company has restated its financial statements in the past 3 years and the restatement is attributable — in whole or in part — to an audit failure (missed material misstatement, inadequate internal control assessment), vote No.

Notes:

• Restatements driven purely by company error or changed accounting standards, where the auditor's work was not implicated, do not trigger this rule
• This trigger requires judgment and manual verification; flag for review when restatements are disclosed in the proxy

Auditor Adequacy for Company Size

The auditor should have demonstrated capacity and expertise commensurate with the company's size and complexity.

• Companies with market cap >$1B: expect a Big 4 firm (Deloitte, PwC, EY, KPMG) or a large national firm (BDO, Grant Thornton, RSM). A smaller regional firm auditing a large or complex public company is a yellow flag — evaluate whether the proxy discloses a rationale.
• Companies with market cap ≤$1B: large national and regional firms are generally adequate; apply judgment based on the company's operational complexity (e.g. international operations, complex financial instruments).

4. What This Policy Does Not Cover (Yet)

The following proposal types are not yet addressed and will be added in future versions:

• Shareholder-submitted proposals
• Equity plan approvals
• Mergers / acquisitions / major transactions
• Classified board / governance structure proposals

5. Version History