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Source: TheStreet, May 30, 2015 article

At Rovi, Activist Investor's Years of Protests Against Executive Pay May Give Leverage on Board

By Ronald Orol  | 03/30/15 - 09:49 AM EDT

NEW YORK (The Deal) -- Three years of protest votes by shareholders against Rovi's (ROVI) executive pay packages mean activist investor Glenn Welling picked a relatively soft target for his short-slate proxy fight at the digital entertainment technology provider.

Welling's Engaged Capital is seeking to install three directors, including himself, on the Santa Clara, Calif.-based company's board at an annual meeting set for May 13. In a letter to Rovi's directors, Welling argues that shareholder returns have been negative overall since the company was formed by the combination of Macrovision and Gemstar-TV Guide International in May 2008. He also raised concerns about the "long tenured" board -- five independent directors have been around since the merger while most have had much longer tenures -- and that new cost management and return on investment expertise is needed.

The company operates an interactive TV-guide technology for multiple devices, an intellectual property licensing operation and an analytics business.

In a small way, Welling's campaign has already succeeded -- last Monday, Rovi expanded its board to seven members and added a little new blood in the form of a new director, Steven Lucas, an analytics and technology expert.

Will that be enough to appease the company's investor base? Not likely.

A review of non-binding shareholder votes on the company's executive pay packages, including compensation paid to Rovi CEO Tom Carson over the past three years suggests that there may be a number of disgruntled investors who could back Welling in his campaign.

In 2012, only about 70% of voting shares backed the top executive pay packages at Rovi, already a substantial vote of no-confidence. In 2013 Rovi received the backing of just 53% of voting shares. Finally, last year Carson and other executives received the backing of merely 40%, suggesting that a substantial majority of shares have significant concerns about pay and the performance of the company.

In both 2013 and 2014, proxy advisory firm Institutional Shareholder Services recommended shareholders vote against the Rovi executive pay plans. The substantial negative vote in 2014 was partly focused on Carson's 2013 compensation of $5.8 million, including roughly $4.7 million in equity grants. The 2013 vote was also likely a reaction to Carson's "new hire" pay of $9.98 million in 2012, which included an $8.9 million equity grant. According to the 2015 proxy statement, Carson was paid $6.7 million in 2014, including roughly $5.5 million in equity grants.

Semler Brossy Consulting, an executive compensation firm, in a May 2014 report attributed the sizable no vote that year to the level of Rovi's pay package compared to peers, the company's negative three-year total shareholder return -- which includes stock price and dividends -- and a reduction in short-term incentive goals in fiscal 2013 compared to fiscal 2012. A recent ISS Quickscore report, obtained by The Deal, gives Rovi its lowest score for compensation, 10 out of 10, suggesting that the company still has executive pay issues.

Nevertheless, Rovi has made a number of pay-related improvements, according to its March 23 preliminary proxy statement. It adopted a clawback policy, which authorizes the board to recover compensation paid to executives based on results that were subsequently restated or corrected. It also changed its pay package peer group of corporations.

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