Voting on Management Proposals

As an active manager, ClearBridge invests invest in a concentrated number of companies where we have high conviction in the business model and management team.

As such, we are generally supportive of the management teams in which we are invested, and this is reflected in our votes on management proposals, including “say on pay” proposals seeking to approve the compensation for named executives. At the same time, we review each “say on pay” on a case-by-case basis and there are cases where ClearBridge portfolio managers will decide to vote against approving the compensation for company executives.

In 2021, we voted against management’s proposed compensation at 96 portfolio companies (which represents 10% of total companies where portfolio managers voted on “say on pay” management proposals).

Splunk: Advisory vote to ratify named executive officers’ compensation

ClearBridge is a top 10 owner.

ClearBridge voted Against this proposal. As required by the Dodd-Frank Act, the company has provided shareholders with a non-binding advisory vote on the compensation of named executive officers; although the vote is non-binding, its outcome will be taken into consideration when considering future executive compensation. Splunk’s one-year total shareholder return trailed both the four-digit GICS peers and the Russell 3000 Index. Revenue declined in FY21 after posting strong growth for a number of years. GAAP net income, EBITDA and operating cash flow were all negative in FY21, with only operating cash flow showing improvement compared to the prior year.

CEO pay increased nearly 24%, or by 74% as valued by the company due to increases in salary, annual incentives and equity grant value. The company uses the same metric — annual recurring revenue measured over a one-year period — as the sole metric for the annual incentive and as the main metric for the performance share units. The company made a mid-year adjustment to what had originally been an aggressive annual recurring revenue growth target, which ultimately had the effect of turning below-threshold performance on this metric into above-target performance; and the committee neither adjusted payout opportunities in line with the reduced targets, nor exercised discretion to cap payouts. This resulted in above-target payouts on both the annual incentives and the performance share units for FY21, notwithstanding a decline in GAAP revenue and a wider net loss for the year. The company’s operating cash flow yielded maximum performance on that metric although operating cash flow was negative for the year. Adjustments to closing-cycle or in-progress longterm incentive awards are generally not viewed as appropriate reactions to COVID-19-related market disruption, particularly when such adjustments result in above-target payouts.

BioMarin Pharmaceutical: Advisory vote to ratify named executive officers’ compensation

ClearBridge is a top 10 owner.

ClearBridge voted Against this proposal. As required by the Dodd-Frank Act, the company has provided shareholders with a non-binding advisory vote on the compensation of named executive officers; although the vote is non-binding, its outcome will be taken into consideration when considering future executive compensation. We deemed insufficient disclosure related to separation payments for former CFO Dan Spiegelman. While the committee improved the vesting design of the performance shares year over year and while non-GAAP income under the long-term incentive program is measured annually and overlaps with the short-term incentive program, relative total shareholder return targets merely median performance, and certain forward-looking goals were undisclosed. The CEO has performed in the bottom quartile of his peer group in shareholder returns and is consistently paid in the top quartile. There is also some leeway in how they are paid for meeting “development goals.” While we are encouraged by the fact that BioMarin is cutting the CEO’s 2021 equity grants by 15%, we think other issues outweigh this positive change.