U.S. Securities and Exchange Commission
Washington, DC 20549
NOTICE OF EXEMPT SOLICITATION
1. Name of the Registrant:
DOMINO'S PIZZA, INC.
___________________________________________________________________________
2. Name of the person relying on exemption:
CTW INVESTMENT GROUP
___________________________________________________________________________
3. Address of the person relying on exemption:
1900 L STREET, NW, SUITE 900 WASHINGTON, DC 20036
___________________________________________________________________________
4. Written materials. Attach written materials required to be submitted
pursuant to Rule 14a6(g)(1):
CTW INVESTMENT GROUP
March 31, 2014
Please WITHOLD support for the re-election of Director Andrew Balson and vote
Meeting on April 29, 2014.
Dear Domino's Pizza Shareholder:
We urge you to Vote No on the Advisory Vote to Approve Executive Compensation
("Say-on-Pay"), and to Withhold support for the re-election of Andrew Balson,
the sole member of the board's Compensation Committee up for re-election on
April 29, 2014. We believe Domino's Pizza's aggressively leveraged balance
sheet and the market's pricing in of high growth expectations places long-term
shareholder value at a sensitive crossroads, making it essential that excessive
and poorly structured pay practices are reformed, and compensation disclosures
and oversight strengthened. For investors, the following are of immediate
concern:
* Large discretionary equity awards that inflate executive pay, betray poor
judgment, and also benefit independent directors;
* Long-term performance incentives that suffer from excessive short-termism,
a lack of vital disclosures, and a generous pay-for-failure vesting schedule;
* An annual incentive plan that operates as a de-facto semi-annual bonus plan
risking a myopic focus on quarterly performance; and
* Compensation Committee Chairman Mr. Balson's record of questionable pay
oversight at public companies.
The CtW Investment Group works with pension funds sponsored by affiliates of
Change to Win - a federation of unions representing over six million members
- to enhance long-term shareholder value through active ownership. These
funds have $250 billion in assets under management, and are substantial
shareholders of Domino's Pizza.
DOMINO'S PIZZA'S AGGRESSIVE STRATEGY REINFORCES THE NEED FOR LONG-TERM FOCUSED
PAY.
Domino's Pizza's stock price valuation leaves as much to fear as to hope, with
very high growth expectations priced into the stock. The shares of our company
have benefited from strong multiple expansion over the past two years leaving
Domino's Pizza's price to earnings ratio at a five-year high - 32x TTM and
close to double the median multiple for consumer discretionary. It is vital,
in this situation, that management is not incentivized to manage or meet
these expectations in the short-run at the expense of long-term value creation.
Domino's Pizza's aggressive leverage at 4.6x EBITDA, high above industry
averages, similarly demands careful oversight and management incentives that
encourage the prudent administration of the capital structure, attendant
liquidity risks and capital return policies.
ONE-TIME AWARDS INFLATE ALREADY HIGH EXECUTIVE PAY AND BETRAY POOR JUDGMENT.
CEO Patrick Doyle has been handsomely rewarded for the company's performance
with his current 3-year realizable pay (based on Equilar Inc.'s "ISS Realizable
Pay" metric) exceeding $43 million, 3x the peer median. We see no reason,
therefore, to grant Mr. Doyle an additional $2.6 million in discretionary equity
awards last year. Indeed, the explanation for this award (paid 80% in the form
of time-vesting stock options; 20% in performance shares) as well as similar
grants to other NEOs - namely that it compensated executives holding options for
the establishment of a regular dividend - is profoundly flawed. We recognize
that anti-dilution payments for special dividends, as contractually paid out
to our executives in 2012 following that year's special dividend, are not
uncommon or wholly unjustified. However, granting additional awards for the
initiation of a regular dividend is something quite different. In contrast to
special dividends, there is no evidence that regular dividends permanently
lower the share price. Instead, the initiation of a regular dividend lowers
earnings and share-price volatilities.
While such a reduction in volatility is clearly in the interest of long-term
shareholders, it does reduce the estimated value of stock options, as reflected
in the construction of the Black-Scholes valuation model. But this observation
only bolsters the case against stock options as a mechanism to align executive
incentives with shareholders' interests; granting executives these additional
options simply exacerbates this misalignment. Moreover, our executives are
already in position to receive dividends on their existing equity holdings, and
stand to benefit from any improved market sentiment following the initiation of
the regular dividend.
Given our concerns over the generosity and necessity of these grants, it is all
the more worrying for our company's corporate governance that the board made
similar discretionary grants to its outside directors holding stock options
(Vernon Hamilton, James Goldman, Andrew Balson, Diana Cantor, Greg Trojan),
exacerbating already high pay for members of our board. Mr. Hamilton, for
instance, received over $350,000 in 2013, 175% the median paid at S&P 500
companies of comparable market capitalization ($2 billion to $7.5 billion) and
bringing his total pay over the past two years to $723,000.
1900 L Street, NW, Suite 900 Washington, DC 20036
202-721-6060
www.ctwinvestment group.com
LONG-TERM AND ANNUAL INCENTIVE VEHICLES SUFFER FROM TRUNCATED PERFORMANCE
HORIZONS, AND PAY-FOR-FAILURE VESTING SCHEDULE
Contrary to its name, the annual incentive plan incorporates a six-month time
horizon, while the long-term performance share plan is more akin to an annual
compensation plan than a truly long-term incentive vehicle. With the remainder
of incentive pay comprising "plain vanilla" stock options, Domino's Pizza's
incentive pay lacks a credible connection to the risks and opportunities of
long-term value creation.
Rather than focusing exclusively on full-year performance, the annual cash
incentive plan incorporates a mid-year payout equal to 50% of the award, based
on performance over the first two quarters. Critically, this mid-year payout
is "not subject to forfeiture" if the full-year performance falls short. We
believe this structure could lead to a possible excessive short-term quarterly-
by-quarterly focus. Meanwhile, the use of performance shares (approximately
50% of the equity mix, with the remainder in plain vanilla stock options) is
undermined by having each tranche vest on the basis of annually established
performance targets. While this may provide retention benefits over an annual
cash plan, it risks incentivizing exactly the same short-term performance
horizon, not the long-term. Moreover, the integrity of these awards is further
diluted by providing for full, 100% vesting on the basis of an 85% achievement
level.
WE URGE THE DISCLOSURE OF VITAL PERFORMANCE METRICS.
Of course, a stretch target might go some way to ameliorating concerns here;
however, not only is the target performance not disclosed, but the performance
metric itself is not given to investors. Shareholders, as a result, have no way
of assessing how this plan aligns with long-term value creation or the
credibility of its performance hurdles.
DIRECTOR BALSON IS A "SERIAL OVERPAYER" WHOSE ONGOING ROLE ON DOMINO'S PIZZA'S
BOARD NEEDS MORE EXPLANATION.
Besides being culpable, as chairman of the Compensation Committee, for the
compensation flaws at Domino's Pizza, Mr. Balson serves on two other
compensation committees with serious pay concerns: Bloomin' Brands Inc. and
FleetCor Technologies, Inc. At last year's Bloomin' Brands shareholder meeting,
a majority of shares cast by outside shareholders opposed the company's "Say
on Pay," while at Fleetcor's 2013 annual meeting approximately a quarter voted
against FleetCor's stock plan (there was no "Say on Pay" proposal), with
leading proxy advisory firm Institutional Shareholder Services recommending
such a vote as well as a vote against directors up for election because of
problematic pay practices. This unenviable record raises serious concerns
over Mr. Balson's continued ability to serve as a member of our compensation
committee.
Moreover, Mr. Balson's departure from the board is long overdue given the
significant changes in our company's shareholder base since the 2005 public
offering. A long-time Managing Director of Bain Capital, Mr. Balson joined
Domino's Pizza's board in 1999 while the company was under the control of Bain.
Mr. Balson's tenure has continued, however, despite Bain completely exiting
Domino's Pizza in 2010. While it is understandable that private equity sponsors
retain board representation after a company's initial public offering, this
representation typically ends when the remaining stake is drawn down, with the
board subsequently transitioning to a membership more reflective of the broader
shareholder base. Not only did this not happen, but the board evidently
rejected Mr. Balson's recent resignation letter, which he was required to
submit under the company's Governance Guidelines following his recent
retirement from Bain. In light of this, the board needs to explain to
shareholders its succession planning regarding Mr. Balson.
We urge you to join us by WITHHOLDING support for Mr. Balson (Item 1) and
voting AGAINST approval of the advisory vote on executive compensation (Item
2). If you would like to discuss our concerns directly with us, please
contact my colleague Michael Pryce-Jones at (202) 721-6079 or
michael.pryce-jones@changetowin.org.
Sincerely,
/s/ Dieter Waizenegger
Dieter Waizenegger
Executive Director, CtW Investment Group
THIS IS NOT A SOILICITATION OF AUTHORITY TO VOTE YOUR PROXY. PLEASE DO NOT SEND
US YOUR PROXY CARD AS IT WILL NOT BE ACCEPTED.
[The letter printed above was also an attachment to the following communication
on Twitter:]
CtW Investment Group ?@CtWInvGrp
See our call to vote against #Execpay at Domino's Pizza - vote against
#sayonpay and director Balson http://ow.ly/vjgRr