UNFI: How I Voted – Proxy Score 17%

United Natural Foods ($UNFI) is one of the stocks in my portfolio. Their annual meeting is coming up on 12/12/2012. ProxyDemocracy.org had collected the votes of three funds when I voted on 12/5/2012.  I voted with management only 17% 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, with 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.

UNFI’s SummaryCompensation Table shows CEO/President Steven L. Spinner, was the highest paid named executive officer (NEO) at about $4.7M in 2012. I’m using Yahoo! Finance to determine market cap and Wikipedia’s rule of thumb regarding classification. According to those sources, at about $2.57B UNFI is mid-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 $4.3 million in 2010.

Allowing for inflation of 6.1%, that would bring adjusted median income up to almost $4.56M, so UNFI’s pay would almost squeak by. is below that median.  However, given that mid-caps range from $2 billion–$10 billion, UNFI’s pay should be below that of the average mid-cap. I therefore will vote no on the say-on-pay proposal and, as is my habit, will vote against the stock plan and all members of the compensation committee (James P. Heffernan, Chair, Joseph M. Cianciolo, Gail A. Graham, and Peter Roy). Unfortunately, because UNFI maintains a classified board, I can only vote against one of the members of the committee. Given the inability to vote against compensation committee members and how the three funds reporting their votes on ProxyDemocracy.org, I voted against both board members.

James McRitchie

James McRitchie

With regard to my own proposal to declassify the board, of course I voted in favor of it. As I point out in the proxy statement:

In 2010 over 70% of S&P 500 companies had annual election of directors… Key directors had served for more than 13-years, which can impact director independence at the expense of shareholders. This included our Chairman Michael Funk, Lead Director and Nomination Committee chair Gordon Barker and Compensation Committee chair James Heffernan. More than 50% of the seats on our most important board committees were held by long tenured directors.CEO Steven Spinner received pay which included stock options and restricted stock units that simply vested after time without performance-contingent criteria. And only 64% of CEO pay was incentive based.

The proportion of S&P 500 companies with annual elections has grown since I filed my proposal to over 83%. Most (66%) mid-caps have also declassified their boards. It is time for UNFI to join the 21st century.  Let’s hope institutional giants such as BAMCO, Inc. (7.49% of shares), BlackRock Fund Advisors (7.31%) and The Vanguard Group, Inc. (5.86%) agree.

On the plus side, UNFI is involved in various environmental efforts including Green Teams addressing local issues and discloses more social and environmental policies than most. We have a good company, especially with regard to E&S (environment and social); more attention needs to be paid to G (governance). I voted with management’s recommendation to ratify auditors.

1aElect Director Peter A. RoyAgainstAgainstAgainstAgainst
1bElect Director Richard J. SchniedersAgainstAgainstAgainstAgainst
2Ratify AuditorsForForForAgainst
3Advisory Vote on NEO PayAgainstForAgainstFor
4Approve Omnibus Stock PlanAgainstForAgainstFor
5Declassify the Board of DirectorsForForForFor

Any proposal that a stockholder wishes to be considered for inclusion in our proxy statement for the 2013 Annual Meeting of Stockholders must be submitted to our corporate secretary, Joseph J. Traficanti, at 313 Iron Horse Way, Providence, Rhode Island 02908, no later than the close of business on July 5, 2013.Get out your calendar. Here’s the deadline for submitting proxy proposals:

 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.
  • No action by written consent.
  • Shareowners can’t convene special meetings.
  • Supermajority requirements.

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