Medtronic: How I Voted – Proxy Score 47

Medtronic ($MDT) is one of the stocks in my portfolio. Their annual meeting is coming up on 8/23/2012. had collected the votes of 5 funds when I voted on 8/18/2012.  I voted with management 47% of the time.

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions where something obviously warrants different treatment. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay, Oxford Review of Economic Policy, Vol. 21, Issue 2, pp. 283-303, 2005), aggregate compensation by public companies to NEO increased from 5 percent in 1993-1995 to about 10 percent in 2001-2003.

Few firms want to admit to having average executives. They survey executive compensation at corporations and then set compensation packages that are above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average and their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third-world.

Medtronic’s SummaryCompensation Table shows Omar Ishrak, Chair and CEO, was the highest paid named executive officer (NEO) at over $25M in fiscal 2012. I’m using Yahoo! Finance to determine market cap and Wikipedia’s rule of thumb regarding classification. According to those sources, at about $22B DELL is a large-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9&10), using data from Equilar, the median CEO compensation at small-cap corporations was $10.8 million in 2010, so MDT’s pay is way above that median.

On that basis, I voted against the pay plan and against the compensation committee members: Richard H. Anderson, Denise M. O’Leary, Kendall J. Powell, and Jack W. Schuler. Another reason for voting against Schuler is his 22 years on the board. That seems too long to be truly independent.

Of course, I also voted in favor of my own proposal at Medtronic, Adopt Simple Majority Vote.

Shareholders request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws that calls for a greater than simple majority vote be changed to require a majority of the votes cast for and against such proposals, or a simple majority in compliance with applicable laws. If necessary this means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws.

As you can see from the votes reported on ProxyDemocracy, the proposal is not controversial by many shareowners. It is simply good governance.

I also voted in favor on Ken Steiner’s proxy access proposal, which I and others at the United States Proxy Exchange helped to design. I discussed the rationale for the proposal previously on and on the Harvard Law corpgov site. Download a PowerPoint presentation and/or read the paper (pdf). Some of the reasons for targeting Medtronic are as follows:

  • Underperformed peers (NYSE Healthcare) over last 5 years by approximately 30%.
  • Recent legal settlements with DOJ and shareowners – risky practices
  • 4 directors held no stock, and do not face same risk as owners.
  • 4 directors received negative votes ranging from 9.8% to 36% in recent elections
  • 1 director served on 4 boards, another on 5. MDT doesn’t have their full attention.
  • 3 “outside” directors have served 12, 14, & 22 years. Independence concern.
  • No majority vote requirement for director elections.
  • CEO & Chairman positions are combined. Independence concern.

The proposal is controversial among institutional investors primarily for two reasons. First, many think the threshold that allows 50 shareowners to nominate a director is too low, even though I know of not even one single effort where 50 shareowners have coordinated to nominate a director. Second, many think groups of individual investors are not qualified to choose director nominees. They are living in the world of Encyclopedia Britannica, instead of Wikipedia. We think those who have their own direct investment (not other people’s money) have every incentive to pick excellent candidates… and will have to be approved by a majority of shareowners if they are to serve. Third, many believe there should be a cap on the number of directors that can be nominated by shareowners. We think our requirement that each group of shareowners nominate only one director and the prohibition against coordination makes it highly unlikely that a majority of a board will ever be replaced through this process. However, in highly unusual conditions (such as the company on the verge of bankruptcy) it would be theoretically possible.

 Checking with, I see no action can be taken by the written consent of shareowners and some provisions require a supermajority of 75%. Mark your calendars; here’s the deadline for proposals by shareowners for next year:

In order for a shareholder proposal to be considered for inclusion in Medtronic’s proxy statement for the 2013 Annual Meeting, the written proposal must be received by the Corporate Secretary at Medtronic’s executive offices no later than March 15, 2013. The proposal must comply with SEC regulations regarding the inclusion of shareholder proposals in Company-sponsored proxy materials.

Here’s how I actually voted, in comparison to those reported on, other than management. My vote is under my name, McRitchie.

1.1Elect Director Richard H. AndersonWithhholdForForForForFor
1.2Elect Director Victor J. DzauForForForForWithholdWithhold
1.3Elect Director Omar IshrakForForWithholdForForFor
1.4Elect Director Shirley Ann JacksonForWithholdForForForWithhold
1.5Elect Director Michael O. LeavittForForForForForFor
1.6Elect Director James T. LenehanForForForForForFor
1.7Elect Director Denise M. O’LearyWithholdForWithholdForForWithhold
1.8Elect Director Kendall J. PowellWithholdForForForForWithhold
1.9Elect Director Robert C. PozenForForForForForFor
1.10Elect Director Jack W. SchulerWithholdForWithholdForWithholdFor
2Ratify AuditorsForForAgainstAgainstForFor
3Advisory Vote to Ratify Named Executive Officers’ CompensationAgainstForForForAgainstAgainst
4Adopt Majority Voting for Uncontested Election of DirectorsForForForForForFor
5Adopt Proxy Access RightForAgainstAgainstAgainstForAgainst
6Reduce Supermajority Vote RequirementForForForForForFor

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