Transition to Elect Directors by Majority Vote

Resolution Text

Resolved: Shareholders of Paycom Software Inc (‘Paycom’) request the Board of Directors amend our policies, articles of incorporation, and/or bylaws to provide that director nominees be elected by the affirmative vote of the majority of votes cast, with a plurality vote standard retained for contested director elections, that is, when the number of director nominees exceeds the number of board seats. This proposal includes that a director who receives less than a majority vote be removed as soon as a replacement director can be qualified on an expedited basis. If such a removed director has key experience, they can transition to a consultant or director emeritus. With written justification, the board can set an effective date several years into the future for these changes to take effect.

Supporting Statement: To provide shareholders a meaningful role in director elections, Paycom’s current director election standard should transition from a plurality vote standard to a majority vote standard when only board-nominated candidates are on the ballot.

Under Paycom’s current voting system, a director can be elected if all shareholders oppose the director but one shareholder votes FOR, even by mistake. 91.6% of companies in the S&P 500 have adopted majority voting for uncontested elections.

In 2022 majority shares voted FOR similar proposals at 2U Inc. (97.9% for), Warrior Met Coal (66.5%), nCino (98.8%), and IQVIA Holdings (58.6%).

Vanguard, one of our largest shareholders, wrote: “If the company has plurality voting, a fund will typically vote for shareholder proposals requiring majority vote for election of directors.” BlackRock wrote: “Majority voting standards assist in ensuring that directors who are not broadly supported by shareholders are not elected to serve as their representatives.” Many of our other large shareholders have similar proxy voting policies.

Unlike 89.4% of S&P 500 companies, Paycom has a staggered board. Also, unlike most S&P 500 companies, Paycom does not provide shareholders the right to call special meetings or act by written consent. Paycom also requires a supermajority vote for shareholders to vote to amend bylaws.    

Our outdated governance structure reduces accountability. We should not risk Zombies on Board: Investors Face the Walking Dead (https://www.msci.com/www/blog-posts/zombies-on-board-investors-face/02161045315).