Walt Disney (DIS): How I Voted – Proxy Score 17

The Walt Disney Company ($DIS) is one of the stocks in my portfolio. Their annual meeting is coming up on 3/06/2013. ProxyDemocracy.org had collected the votes of four funds when I checked on 2/26/2012. I added CalSTRS below, which announced their votes earlier.  I voted with management 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.

Disney’s SummaryCompensation Table (p. 37) shows Robert A. Iger, Chairman and Chief Executive, was the highest paid named executive officer (NEO) at about $40.2M in 2012. I’m using Yahoo! Finance to determine market cap and Wikipedia’s rule of thumb regarding classification. Of course, Disney 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 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 Disney’s pay is substantially above that stabilized median. Given that Disney is a mega-cap, maybe $23M could be reasonable but $40.2M? Sorry, that just seems a little too high for me, so I’m voting against the pay package, bonus plan, and against the Compensation Committee members Susan E. Arnold (Chair), John S. Chen, Fred H. Langhammer, and Aylwin B. Lewis. I also joined with CalSTRS in voting against Estrin, Iger, Lozano, and Matschullat. I repeat some of the rationale from CalPERS below:

Nominee Arnold has served as Chairperson of the Compensation Committee during the past year, during which the Company has failed to address shareholder concerns regarding compensation, as demonstrated by the 43 percent against vote of last year’s Say-on-Pay proposal. We believe Ms. Arnold as Chair of the Compensation Committee should be held accountable for the outcomes of the Committee’s actions. We believe Ms. Arnold has failed in her capacity to serve shareholders and reform the compensation practices at Disney to provide for a better alignment of pay with performance.

Nominee Iger has served as Chief Executive Officer (CEO) since October of 2005, and was appointed as Board Chair and CEO in March 2012. He accepted, and we believe insisted on, the combined roles as part of his new employment contract. CalSTRS fundamentally supports the concept of an independent, non-executive Board Chair and therefore does not support Mr. Iger’s nomination as Board Chair.

Nominees Estrin, Lozano, and Matschullat are all long-standing directors that have served since 1998, 2000, and 2002 respectively. Their experience on the Board during 2004-05, which led up to the ousting of then-CEO and Board Chair Michael Eisner and the separation of the Board Chair and CEO, should have provided them with the foresight to expect strong shareholder reactions to the recombination of these roles.

Nominee Lewis has served as the Chair of the Nominating and Governance Committee during the past two years, during which time the Company took measures to recombine the roles of CEO and Board Chair. The Governance and Nominating Committee has the primary responsibility to develop and implement policies related to corporate governance. CalSTRS believes the committee members were remiss in their responsibilities by not surveying shareholders prior to reversing a leadership structure that shareholders rejected just a few years earlier. Compounding this poor decision, the Board committed to this leadership structure through 2016 by granting Mr. Iger the Chairmanship in his employment agreement.

We were further concerned by the weak responsibilities afforded the Lead Director. For example, the Lead Director can only approve meeting agendas and information sent to the Board. This places an undue amount of control into the hands of one individual, the Board Chair. In addition, the Lead Director can only “provide advice with respect to the selection of Committee Chairs.” This means that Mr. Iger now has ultimate authority over choosing the leader of the very committee that determines his compensation and the future makeup of the Board.

Of course, I voted in favor the proxy access proposal submitted by Hermes Equity Ownership Services, as well as the proposal by the Connecticut Retirement Plans and Trust Funds to separate Chairman and Chief Executive Officer positions. These are simple good governance proposals. Shareowners will never be able to hold directors accountable until we can use the company proxy, our proxy, to nominated director candidates. The chairman of the board cannot lead a proper evaluation of the CEO when they are one and the same.

Here’s how I (CorpGov) voted at Disney:

1.aSusan E. Arnold               AgainstAgainstAgainstForForFor
1.bJohn S. Chen                   AgainstForAgainstForForFor
1.cJudith L. Estrin                 AgainstAgainstAgainstForForFor
1.dRobert A. Iger                 AgainstAgainstAgainstAgainstForFor
1.eFred H. Langhammer        AgainstForAgainstForForFor
1.fAylwin B. Lewis               AgainstAgainstAgainstForForFor
1.gMonica C. Lozano            AgainstAgainstAgainstForForFor
1.hRobert W. Matschullat      AgainstAgainstAgainstForForAgainst
1.iSheryl K. Sandberg          ForForForForForFor
1.jOrin C. Smith                   ForForForForForFor
2Ratify Auditors                 ForForAgainstForAgainstFor
3Amend Bonus Plan           AgainstAgainstAgainstAgainstForAgainst
4Say on Pay                      AgainstAgainstAgainstAgainstAgainstAgainst
5Proxy Access Right           ForForForForForFor
6Independent Brd Chair      ForForForForForFor

  Looking at SharkRepellent.net and other sources, it appears shareholders cannot call special meetings and the company maintains certain supermajority voting requirements.

Mark your calendar: Requirements for Shareholder Proposals to Be Considered for Inclusion in the Company’s Proxy Materials.

Shareholder Proposals for Inclusion in 2014 Proxy Statement. To be eligible for inclusion in the proxy statement for our 2014 Annual Meeting, shareholder proposals must be received by the Company’s Secretary no later than the close of business on September 20, 2013. Proposals should be sent to the Secretary, The Walt Disney Company, 500 South Buena Vista Street, Burbank, California 91521-1030 and follow the procedures required by SEC Rule 14a-8.

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