TD Ameritrade: How I Voted – Proxy Score 0%

TD Ameritrade Holding Corp.  ($AMTD) is one of the stocks in my portfolio. Their annual meeting is coming up on 2/13/2013. ProxyDemocracy.org had collected the votes of only two funds when I voted on 2/7/2012.  I voted with management 0% 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.

AMTD’s SummaryCompensation Table shows CEO Fredric J. Tomczyk, was the highest paid named executive officer (NEO) at about $6,523,339 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 $10.61B AMTD 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 AMTD’s pay is substantially below that stabilized median. Normally, that would lead me to vote in favor of the pay package. However, I find AMTD’s corporate governance practices so bad that I am voting against all the board’s recommendations as a way of hopefully getting their attention.

  Looking at SharkRepellent.net and other sources, too many red flags stand out for me:

  • Classified board with staggered terms.
  • Plurality vote standard to elect directors with no resignation policy.
  • Board is authorized to increase or decrease the size of the board without shareholder approval.
  • Cumulative voting is prohibited in the election of directors (default Delaware state statute). 
  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
  • Supermajority vote requirement (80%) to amend certain bylaw provisions.
  • J. Joe Ricketts, the founder, his family and their trusts own approximately 15% of the common stock. The Toronto-Dominion Bank (“TD”) owns approximately 46%.  Agreements give them the right to nominate a majority of the board.
  • The board does not have a majority of outside independent directors, since many are the majority are picked by the two owners. 
  • The lack of independent directors along with a controlling shareholder group raises serious concerns about the board’s accountability to other shareholders, such as myself.
  • Kerry Peacock, executive vice president of TD Waterhouse Discount Brokerage, sits on the audit committee and limits that committee’s ability to provide independent oversight. 
  • AMTD has, what I believe to be, an excessive number of related party transactions.

Here’s how I (McRitchie) voted at AMTD:

NUM. PROPOSAL TEXT McRitchie CALVERT  CBIS
1.1 Marshall A. Cohen Withhold Withhold Withhold
1.2 Kerry A. Peacock Withhold Withhold Withhold
1.3 J. Peter Ricketts Withhold Withhold Withhold
1.4 Allan R. Tessler Withhold Withhold Withhold
2 Say on Pay Against Against For
3 Ratify Auditors Against For For

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

In In order to be included in the Company’s Proxy Statement relating to its next Annual Meeting, stockholder proposals must be received no later than September 5, 2013 by the secretary of the Company at the Company’s principal executive office.

Based on the above, there are no lack of issues that could be addressed at an annual meeting. Unfortunately, given the ownership blocks, I’m not sure there would be much point other than letting the controlling shareowners know our displeasure with the current state of AMTD governance.

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