NEW YORK (The Deal) -- At first glance, Marathon Partners Equity Management scored only a partial victory last week when it installed two of three dissident director candidates onto Shutterfly's (SFLY) nine-person board. But a closer look at the results reveals that CEO Jeffrey Housenbold was barely re-elected at the same time that he and other executives received bruising negative votes on their compensation. The likely result: Major changes at the photo book and other photography services company.
Roughly 78% of voting shares at the company's June 12 annual meeting opposed the executive pay packages -- a larger negative pay vote than any U.S. company execs received in 2014 (Chipotle Mexican Grill (CMG) had the dubious honor of the strongest vote against CEO pay in 2014 at 77%). That's up from a similarly harsh negative vote of roughly 50% in 2014, 45% in 2013 and 36% in 2012.
This year, the two big proxy advisory firms, Institutional Shareholder Services and Glass Lewis & Co., found significant issues with Shutterfly's executive pay. Glass Lewis gave Shutterfly an "F" grade "for having paid significantly more than its peers while the company's performance was undistinguished.
Meanwhile, the two dissident candidates elected to the board are expected to focus on share price improvement: one is Marathon's founder and managing member, Mario Cibelli, who previously worked for well-known insurgent fund manager Mario Gabelli. Cibelli took his campaign at Shutterfly public in July 2014 after months of private conversations, and followed it up with a September letter saying he would back a deal at a fair value. Marathon has been a shareholder for roughly seven years, according to a person familiar with the activist.