(Editors' Note: This article covers a stock trading at less than $1 per share and/or has less than a $100 million market cap. Please be aware of the risks associated with these stocks.)
Last Friday, late in the afternoon, Edgewater Technology, Inc. (NASDAQ: EDGW) ("EDGW" or the "Company") filed an 8-K. The 8-K related to new employment agreements that the Company reached with several members of senior management. In the past, I have seen many companies file 8-Ks late in the day on a Friday in an effort to bury information and avoid investor scrutiny. While I have no idea what motivated the timing of this EDGW filing, Ephraim Fields of Echo Lake Capital noticed both the filing and its timing, and was not happy with either.
In a letter to EDGW's Board of Directors that was released publicly earlier today, Fields was highly critical of the significantly increased compensation that was awarded to EDGW's senior management. Fields criticized the Company's Board of Directors and said "Your decision to continually provide increased compensation for people whom we believe have repeatedly underperformed (based on both qualitative and quantitative measures) raises serious questions about both your motivations and willingness to uphold your fiduciary responsibility to act in the best interests of all shareholders."
Fields then asked five questions that may be of interest not only to anyone involved with EDGW, but to anyone more broadly interested in corporate governance.
- Considering Ms. Singleton, Mr. Clancey, Ms. Ranzal-Knowles and Mr. Oakes collectively made $2.8 million in 2012 (the last year for which such data is available), which was almost 2x the company's net income for that year, do you really believe these individuals deserve even more compensation?
- What exactly has Ms. Singleton accomplished to deserve a contract extension and a 21% increase in her minimum annual base salary for 2014? Do you feel she has management skills, technological insights or other attributes that cannot be provided by other, less expensive CEOs? You can clearly see how EDGW's stock has repeatedly underperformed over the past 10 years under her leadership, so why do you continue to retain her services? On a related note, have you ever conducted any confidential internal research to determine how Ms. Singleton is viewed by EDGW's employees? (You can probably guess what our research has concluded).
- Now that you have granted senior management significant pay increases for 2014, will you, the Board of Directors also be receiving pay increases?
- Now that you have granted Ms. Singleton and Mr. Clancey increases in their minimum annual base salary for 2014 of 21% and 25%, respectively, can all EDGW employees expect similar pay increases?
- What is your justification for approving even more generous change of control packages? Clearly a potential result of this is to further enrich senior management while harming shareholders by reducing the price a potential acquirer would pay for EDGW's shares.
EDGW's stock price has traded up significantly since I first mentioned it in November 2012, so clearly some investors have been accumulating positions. The only question is, do these shareholders support Fields or EDGW's Board of Directors?