Microsoft (MSFT): How I Voted – Proxy Score 92%

Microsoft ($MSFT) is one of the stocks in my portfolio. Their annual meeting is coming up on 11/28/2012. ProxyDemocracy.org had collected the votes of six funds when I voted on 11/16/2012.  (The Table below doesn’t include the votes of Trillium.) I voted with management 92% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes)

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.

MSFT’s SummaryCompensation Table shows COO B. Kevin Turner, was the highest paid named executive officer (NEO) at about $10.7M 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 $224B MSFT is a mega-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9 & 10), using data from Equilar, the median CEO compensation at large-cap corporations was $10.8 million in 2010.

Allowing for inflation of 6.1%, that would bring adjusted median income up to almost $11.5M, so MSFT’s pay is below that median.

With regard to Kenneth Steiner shareowner proposal to adopt cumulative voting, I voted in favor of that measure. As Steiner points out:

Cumulative voting also allows a significant group of shareholders to elect a director of its choice – safeguarding minority shareholder interests and bringing independent perspectives to Board decisions.

Cumulative voting could take on even a higher priority as proxy access proposals are adopted. My recommended votes are listed below under CG.

# TEXTCGAFSCMEDOMINICALVERT CBIS
1Steven A. BallmerForForForForFor
2Dina DublonForForForForFor
3William H. Gates, IIIForAgainstAgainstForFor
4Maria M. KlaweForForForForFor
5Stephen J. LuczoForForForForFor
6David F. MarquardtForAgainstForForFor
7Charles H. NoskiForForForForFor
8Helmut PankeForForForForFor
9John W. ThompsonForForForForFor
10Say on PayForForAgainstForFor
11Approve Stock PlanForForForForFor
12Ratify AuditorsForAgainstForForAgainst
13Cumulative VotingForForAgainstForAgainst

Get out your calendar. Here’s the deadline for submitting proxy proposals:

Shareholders who, in accordance with SEC Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed in connection with next year’s annual meeting must submit their proposals so they are received by the Corporate Secretary of Microsoft at the address provided below no later than the close of business (5:30 p.m. Pacific Time) on June 18, 2013. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included.

Looking at SharkRepellent.net for possible areas of reform, I note the following:

  • The board is authorized to increase or decrease the size of the board without shareowner approval. Although I haven’t seen proposals to require shareowner approval, it seems like that would be a good idea.
  • Unanimous written consent is required (default Washington state statute). I’d like to see that lowered to 10%.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power. Again, 10% is a more reasonable standard.

I also think MSFT could be a potential candidate for proxy access, especially given that its stock has gone nowhere in the last five years. I also have several issues with the members of the board being overboarded and with related party transactions. However, in general MSFT’s ESG factors are higher than average.

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