After Stadium Capital’s Rejection of a Reasonable Resolution, Board Reaffirms Commitment to Its Strategic Plan and Doing What Is Best for All Stockholders
Company Corrects Numerous Factual Inaccuracies and Mischaracterizations in Stadium Capital’s Letter and Press Release
Correcting the Facts
Stadium Capital’s letter and press release are full of inaccuracies
and mischaracterizations as detailed in the Board’s response,
Insperity’s reported adjusted EBITDA actually increased 12% from
2011 to 2013 (not a decrease of 6% as reported by
Stadium Capital), which is in line with the public competitors cited in Stadium Capital’s letter, and represents a 67% increase since 2009.
- Executive compensation is directly impacted by our performance, as reflected in the CEO’s 2013 compensation decline of 12%; and was most recently supported by the leading proxy advisor firms and 92% of the stockholders.
- The CEO’s total compensation, including commuting and other perquisites, is reasonable. In fact, the proxy report of ISS issued in 2013 placed him near the bottom quarter of peers.
Stadium Capitaloverstated the total executive compensation for all named executive officers over the past five years by 14%.
In the letter,
Stadium Capitalfailed to properly consider Insperity’s multi-year strategic plan.
- Numerous corporate governance initiatives were implemented over the past two years.
- Insperity’s reported adjusted EBITDA actually increased 12% from 2011 to 2013 (not a decrease of 6% as reported by
Stadium Capital Rejected a Reasonable Proposal by
Despite being a stockholder since 2004 (and a major stockholder since
2008) and a long history of open dialogue,
Stadium Capitalfirst raised these concerns in the past few weeks.
During recent discussions,
Stadium Capitalfocused upon the number of seats that it could obtain on the Board and not on the other issues that were raised in its letter.
Despite making allegations of governance failures at
Insperity, Stadium Capitaldemanded to circumvent important corporate governance policies and procedures designed to protect the interest of all stockholders.
Stadium Capitalrejected the Board’s offer to add a Stadium Capitalemployee and another new independent director, potentially from another large stockholder, to the Board.
Best Path for Creating Value for All Stockholders
Insperityhas made $69 millionof stock repurchases and paid $103 millionin dividends over the past five years.
Insperityis focused on and committed to executing its multi-year strategic plan.
- The Board is committed to ensuring that the company is on a path that is in the best interests of all of the stockholders and does not become beholden to the individual interest of any one stockholder.
The Board also expressed its disappointment that, after spending
significant time and effort considering Stadium Capital’s requests and
speaking nearly daily to its representatives during the past several
The full text of the letter follows:
We have read your letter to our fellow stockholders dated
A Reasonable Resolution Rejected by
Since first learning of your concerns and demands last month, we have
worked extensively with you to reach a satisfactory resolution. At your
request, we focused on your primary concern, which was your demand that
the company appoint, on an arbitrary and unreasonable timeline,
As you are well aware, last week, after full deliberation by the Board,
we proposed that one representative of
Based on these factors, there was substantial discussion about the
anticipated contributions, areas of expertise and perspectives that the
The Board also made clear to you that it is amenable to adding an
additional new independent voice to the Board, including potentially
from another large stockholder. As a member of the Nominating and
Corporate Governance Committee, a
Again, the Board’s decision and proposal to you was based on all information available to the Board and on what the Board believes is best for all company stockholders, not just one. Our proposal met that criteria, while your request for Stadium employees to receive multiple seats on the Board and be designated as Chairman of the Board, in our opinion, simply does not.
Long History of Constructive and Open Dialogue
Equally perplexing are your sudden stated concerns about the company’s performance and your call for it to explore strategic options, particularly given we have maintained an open, active and constructive dialogue with you for many years. Let us be very clear on the second point. The Board will always act to enhance long-term stockholder value. We regularly review strategic opportunities, and we are confident that the company currently has the right strategic plan and team in place to drive stockholder returns.
Since we first announced our current strategic plan in 2011, you have
always expressed support for our plan in the numerous meetings we have
had with you. Our recent discussion with you on
Consistent with our history of responsiveness and cooperation, Mr.
Sarvadi and other members of the company’s executive leadership team and
members of the Board have been in an almost constant dialogue with you
since you delivered your
The Right Strategy for Long-Term Value Creation
In addition to containing numerous inaccuracies and mischaracterizations, your analysis fails to properly consider our multi-year strategic plan introduced in 2011 that is designed to expand the businesses we serve and the solutions we offer. Our strategy is transforming Insperity’s business from offering a single comprehensive HR solution to smaller companies to one that now offers 10 strategic business solutions to a much broader array of prospects in different stages of their business cycles. It requires significant investments, the development of multiple new product offerings through a buy, build or partner strategy, and the re-training and expansion of the sales force. Already, these initiatives are beginning to show a positive impact on the company’s business, and we expect to achieve additional milestones in the months and years ahead. We firmly believe, as we have previously reiterated, this is the right path and strategy to deliver long-term value for our stockholders, and we are intensely focused on achieving those results.
As noted above, your letters and press release are rife with factual inaccuracies and mischaracterizations. To correct some of these mistakes, we note that:
- Insperity’s reported adjusted EBITDA1 actually increased 12% from 2011 to 2013, which is in line with the public competitors cited in your letters, and represents a 67% increase since 2009.
Your market value analysis focuses on a comparison of Total Enterprise
Value / LTM EBITDA to create a negative view of our valuation while
ignoring other important and relevant valuation methods, such as the
company’s Price-to-Earnings (“P/E”) and Market Capitalization / LTM
EBITDA (“MarketCap/EBITDA”) multiples, which are comparable to the
company’s competitors. As of
April 21, 2014, Insperity’s P/E multiple is 22x, which is above the S&P500 of 18x and comparable to the public competitors cited in your letter today, which are trading at an average of 25x P/E multiple. In addition, Insperity’s Market Cap/EBITDA multiple is 9x as of April 7, 2014, which is comparable to the Market Cap/EBITDA multiple of a PEO competitor that recently completed its initial public offering.
Insperityhas a demonstrated track record of returning capital to its stockholders, as evidenced by its $69 millionof stock repurchases and $103 millionin dividends over the past five years. The Board also regularly considers other ways to enhance stockholder value, such as the company’s $50 million tender offer for its own shares, for which Stadium Capitaladvocated, in December 2012.
Insperityis committed to strong corporate governance. For example, in the last two years alone, the Board has implemented stock ownership guidelines, created a lead independent director position, added a new independent director, implemented “double-trigger” vesting of stock awards following a change of control, prohibited hedging and new pledges of shares, adopted majority voting for election of directors and implemented a clawback policy.
- You compared Insperity’s financial performance and valuation to a group of companies identified as peers solely for compensation purposes. The purpose of this compensation peer group, which was developed with the assistance of the Compensation Committee’s outside compensation consultant, is to compare the company’s pay practices to those companies with which it competes for talent and not as a financial performance measure. Further, even if applicable, a cursory review of the compensation peer group reveals that the inclusion of certain performance outliers, such as pure-play SaaS companies, significantly distort any such financial comparison.
Insperity’s compensation plans, which are designed with the assistance
of outside consultants and consider market analysis, are reasonable
and are aligned with the company’s performance, as evidenced by:
- The reduction in compensation that the company’s executives received in 2013. For example, the CEO’s compensation was reduced by 12% in 2013 as compared to 2012, returning his compensation to 2008 levels and underscoring the fact that the company’s executive compensation is tied to the speed at which the new business strategy is executed and positive results obtained.
- ISS’s report on the company’s executive compensation as set forth in the 2013 proxy statement found that our CEO’s total compensation, including perquisites such as commuting on corporate aircraft, placed him at approximately the 28th percentile of the ISS compensation peer group. Indeed, our Compensation Committee considers the CEO’s total compensation, including all perquisites, when determining compensation.
- In your press release, you overstated the total executive compensation for all named executive officers over the past five years by 14%.
Neither ISS nor
Glass Lewisraised any significant executive compensation or stock pledging concerns in their 2013 reports, and both recommended a vote in favor of the company’s compensation, as did 92% of our stockholders who voted in last year’s election.
Your analysis of the use and cost of the company’s corporate aircraft
is flawed in many respects. Contrary to your insinuations, the
substantial majority of use of the aircraft is for business purposes
and for chartering to third parties when not in use by the company.
You substantially overstated the incremental costs of the aircraft by
failing to consider the significant revenue received from third party
charters, the reimbursement received from executives for their limited
personal use and the costs that would be incurred for alternate
commercial flights. In addition, Mr. Sarvadi’s use of the aircraft for
commuting, which represents only a small fraction of the overall use
of the aircraft, is generally from the
Dallasarea to corporate headquarters on a weekly basis, not “quasi-daily.” The value of this use is taken into account by the Compensation Committee in setting his overall compensation and it is included in total compensation as reported. The Board considers the company’s need for the aircraft in light of its overall business and the commitment to excellence in service and responsiveness to clients, employees, prospective clients, vendors and stockholders.
- Your new criticisms about the CEO’s stock pledges are without foundation. These pledges pre-dated the company’s implementation of its stock pledging policy. Detailed information concerning the pledging has been fully disclosed in the company’s proxy statement, including the Board’s review and determination that the amount of shares pledged was insignificant. Further, as disclosed in the most recent proxy, the number of shares pledged by Mr. Sarvadi has decreased.
Our executive officers and directors collectively own more than 11% of
our outstanding shares, an amount that exceeds the holdings of
Stadium Capitaland that firmly aligns our management’s interests with that of our stockholders. Notably, Mr. Sarvadi, who was a co-founder of the company, is the 3rd largest stockholder and Richard Rawson, who was a stockholder for many years prior to the company’s initial public offering, is the 11th largest stockholder.
Accordingly, we strongly encourage
A Commitment to Growth and Serving All Stockholders
The Board and management are concerned that the company’s largest
stockholder has chosen to express a negative view of
Had you accepted our offer to join the Board, we believe that this would
have enabled you to see first-hand that our directors are
independent-minded, have extensive financial and operational knowledge
and prudently represent the interests of all of the company’s
stockholders. We also made clear to you that the Board is amenable to
adding an additional new independent voice to the Board, including
potentially from another large stockholder. However, consistent with the
tactics you have recently employed, you decided to terminate our
dialogue, reject our offer on the spot and make public statements rather
than continuing discussions that would have resulted in
The Board is interested in ensuring that the company is on a path that
is in the best interests of all of the stockholders and does not become
beholden to the individual interests of any one stockholder. In light of
the obvious flaws in your letters and your decision to abruptly reject a
reasonable offer to join the Board, coupled with the tactics you have
employed while substantially increasing your stake in
We remain focused on growing our business in 2014 and beyond as we capitalize on health care reform and the roles that our HR technology, our new service offerings and the recent increase in our sales force will play in meeting the needs of our clients and prospects across all of our segments. We are optimistic about our plan and will continue to focus on ways to deliver superior value to our clients and our stockholders.
Sincerely on Behalf of the Board of Directors,
/s/ Paul J. Sarvadi
/s/ Gregory E. Petsch
|Paul J. Sarvadi||Gregory E. Petsch|
|Chairman of the Board and||Lead Independent Director|
|Chief Executive Officer|
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Important Additional Information
Investor Relations Contact:
Douglas S. Sharp, 281-348-3232
Senior Vice President of Finance,
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