Costco: How I Voted – Proxy Score 25%

Costco ($COST) is one of the stocks in my portfolio. Their annual meeting is coming up on 1/24/2013. had collected the votes of four funds when I voted on 1/22/2012.  I voted with management only 25% 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.

Costco’s SummaryCompensation Table shows CEO W. Craig Jelinek, was the highest paid named executive officer (NEO) at about $4.8M 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 $44.18B Costco is large-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 $11.4M, so Costco’s pay is substantially below that stabilized median.  Therefore, I voted in favor of the pay package. I see CalSTRS withheld their votes for all directors. I’m not sure why they withheld but I do see that a proposal to declassify the board passed back in 2006 and the board has still taken no action to move to annual elections. Because of this, I joined CalSTRS in withholding my vote from all directors. Shareowners should be able to vote on each director every year in order to provide feedback and to turn directors out in unusual circumstances.

I voted in favor of the auditor and, of course, in favor of the proposal to declassify the board submitted by the Pension Reserves Investment Management Board with the help of Harvard’s Shareholder Rights Project. I wish we could clone their efforts at other law schools. I would have liked to vote in favor of my own proposal to hold a proxy advisor contest (see Costco: Proxy Advisor Contest Proposed). Unfortunately, Costco was able to obtain an SEC no-action letter to keep it off the ballot because of a minor issue. I later submitted a revised proposal to Amazon, so should have a chance to vote for the proposal at Amazon’s meeting. Here’s how I (McRitchie) voted at Costco:
1.1Benjamin S. Carson, Sr.WithholdForForForWithhold
1.2William H. GatesWithholdForForForWithhold
1.3Hamilton E. JamesWithholdForForForWithhold
1.4W. Craig JelinekWithholdForForForWithhold
1.5Jill S. RuckelshausWithholdForForForWithhold
2Ratify AuditorsForForAgainstForFor
3NEO CompensationForAgainstForForFor
4Declassify Board ForAgainstForForFor

Mark your calendar, here’s the deadline for submitting shareowner proposals for next year:

In order for a shareholder proposal to be included in the proxy statement for the 2014 annual meeting of shareholders, it must comply with the SEC Rule 14a-8 and be received by the Company no later than August 15, 2013. Proposals may be mailed to the Company, to the attention of the Secretary, Costco Wholesale Corporation, 999 Lake Drive, Issaquah, Washington 98027.

Looking at, some possible issues for next year are the following:
  • Classified board – Let’s hope we take care of that this year and the board takes action
  • Unanimous written consent is too high a threshold.
  • Supermajority vote requirement (66.67%) to amend certain charter provisions.
  • Board is authorized to increase or decrease the size of the board without shareholder approval.

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