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Universal Insurance Holdings Inc. Message Board

  • shrewd_curmudgeon shrewd_curmudgeon Feb 26, 2013 12:51 PM Flag

    $10 million proposed CEO compensation-- contact compensation committee

    The following is the letter I am sending to the compensation committee:

    As members of the compensation committee, it is your responsibility to prevent excessive compensation. I propose that you provide a compensation comparison to similar-sized public companies in your industry. I have done my own objective analysis of compensation expense as a ratio to top line and bottom line company metrics and find the compensation plan is currently out-of-line with Universal Insurance Holding’s peers.
    I believe the current compensation is detrimental to Universal Insurance Holding’s stock price growth. UVE has remained in this $3/sh to $6/sh range for most of the time since 2007. Compensation of UVE’s top 3 managers has been about $10 million per year recently when net income is only around $30 million per year. I would expect the CEO to receive total compensation around 0.4% of total revenue and expect the top 3 managers combined to receive total compensation around 0.7% of revenue, yet this ratio is 2.6% for the CEO of UVE and around 4% for the top 3 managers of UVE.
    The committee’s proposed compensation plan is going even further in the wrong direction. Let's estimate what the proposed 2013 compensation would be. I would expect that UVE would have pre-tax income of $35 million to $40 million for the next year. Using this assumption, the compensation committee has proposed Sean Downes to earn a salary of $2 million and a bonus of ($5 million * 3%+ ($30 million to $35)*4%) + 1.5 million restricted shares*$4.50/sh. This comes to a total of $10.1 million to $10.3 million for one executive for the year 2013 for just achieving status quo results. Does this seem reasonable? In my view this is embarrassing and is seriously pushing me reconsider whether I want to be a shareholder of UVE. Mr. Springer is also proposed to get what I would consider is an obscene compensation and golden parachute agreement. Going forward, I believe it would be beneficial for UVE to reduce compensation expense to more in-line with peers.
    Below is a table (Table 1) comparing UVE’s compensation vs. industry peers. As you can see, UVE is more than a 10-sigma outlier in this distribution when compensation as a ratio of revenue is considered. And UVE is also more than a 10-sigma outlier when compensation as a ratio of net income is considered. UVE is far beyond the mean in both cases.

    Company Symbol Revenue ($M) Net Income ($M) CEO Compensation ($M) Comp/ Revenue Comp/Net Income
    Donegal Group DGICA $510 $23 $1.02 0.20% 4.4%
    Eastern Insurance EIHI $168 $10 $0.53 0.32% 5.3%
    EMC Insurance EMCI $504 $38 $1.38 0.27% 3.6%
    Global Indemnity GBLI $300 $34 $1.45 0.48% 4.3%
    Homeowners Choice HCI $149 $21 $0.70 0.47% 3.3%
    Meadowbrook Insr MIG $997 $30 $0.77 0.08% 2.6%
    United Insurance Hldg UIHC $120 $12 $0.45 0.37% 3.7%
    average 0.31% 3.9%
    std dev 0.14% 0.9%
    UVE (Downes) UVE $253 $30 $6.5 2.57% 21.7%

    Table 1: Comparison of stock compensation of UVE to other companies within industry.

    I have only listed the prior year’s compensation, however, the 2013 proposed compensation is of $10 million (instead of $6.5 million) is far, far beyond what I will tolerate. Providing CEO annual compensation at 2.6% of total revenue and certainly the proposed 4.0% of revenue for 2013 are greatly beyond what I consider reasonable. It appears that CEO compensation should be reduced to about 1/5th of the 2012 level. I implore you to take a serious look at stock compensation ratios within the industry and do what you think is fair when you are representing shareholders.

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    • I admire your efforts and agree with you, BUT it is not going to help. You need to change your approach slightly or take a multi-pronged approach.

      Go through the steps and red tape to get your proposal on the annual ballot.

      Issue a formal press release as a shareholder pointing out the same.

      Show up in person at the annual meeting and ask pointed questions.

      Organize a picket in front of their office pointing out the same.

      Buy up enough stock to get over 5% ownership and someone might listen.

      I wish it weren't so.

      • 2 Replies to uptabdowntab

      • Thanks for your comments and for thinking about this. I thought about some of those. We are not on time for 2013 shareholders' proxy since "Proposals of shareholders intended to be presented at the 2013 Annual Meeting of Shareholders must be received by the Company no later than December 8, 2012 to be considered for inclusion in the proxy statement for fiscal year 2012 relating to such meeting."
        I realize the proxy process is set up to favor corporate management. We certainly need more impact. Unfortunately, I have a rather busy work schedule already which prohibit me from attending the Ft. Lauderdale mtg. The PR is an excellent idea. I know how I am voting. I will let you know if I get any response on my message to the BoD Compensation Committee member and my success or lack thereof on discussions with them. Good comments.

        Sentiment: Buy

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