How I Voted: Kansas City Southern (KSU) – Vote Score 86%

Kansas City Southern ($KSU) is one of the stocks in my portfolio. Their annual meeting is coming up on 5/2/2013. had collected the votes of three funds when I checked on 4/26/2013. I also checked OTPP, which voted the same as CalSTRS and Calvert. I voted with management 86% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime)

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at 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.

KSU’s Summary Compensation Table shows CEO David L. Starling was the highest paid named executive officer (NEO) at about $4.8M in 2012. I’m using Yahoo! Finance to determine market cap ($11.8B) and Wikipedia’s rule of thumb regarding classification. KSU 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.

Factoring inflationKSU’s pay is well below median. I voted for the compensation plan and all the directors.

Of course, I voted in favor of my own proposal to declassify the board of directors. In 2010 over 70% of S&P 500 companies had annual election of directors. Shareholder resolutions on this topic have won an average support of 68% in a single year. For additional rationale, see Harvard’s Shareholder Rights Project (SRP). Precatory declassification proposals brought by SRP-represented investors passed by substantial margins (support averaged 82% of votes cast) at the 2012 annual meetings of 39 S&P 500 companies (listed here). It is plain good governance. Shareowners should have an opportunity to hold directors accountable every year. How I voted (CorpGov) below:

Mark your calendar:

The Bylaws provide that to be properly brought before a meeting, a proposal must be brought (i) pursuant to our proxy materials with respect to such meeting, (ii) by or at the direction of the Board of Directors, or (iii) by a stockholder who (A) was a stockholder of record both at the time of giving of notice for the meeting and at the time of the meeting and is entitled to vote at the meeting and (B) has timely complied in proper written form with the procedures set forth in the Bylaws. In addition, the Bylaws (A) expand the required disclosure regarding stockholders making proposals or nominations to include, among other things, disclosure of all ownership interests, class and number of shares owned, hedges, derivative and or short positions, hedging or other transactions, profit interests, options, any voting or dividend rights with respect to any shares of securities of the Company, any material interests of the stockholder (and beneficial owner, if any) in the nomination or proposal, and any other information that would be required in a solicitation of proxies for the nomination or proposal, and (B) require a stockholder nominating a person for election as a director to include in the advance notice certain biographical information about each such nominee, a fully completed Director’s Questionnaire on the form supplied by the Company, a written representation of such nominee as to any voting commitments or related transactions, and an agreement by such nominee to comply with the Company’s corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines.

If a holder of our Common Stock wishes to present a proposal for inclusion in our proxy statement for next year’s annual meeting of stockholders, the proposal must be made in accordance with the applicable laws and rules of the SEC and the interpretations thereof, as well as our Bylaws. Any such proposal should be sent to our Corporate Secretary at P.O. Box 219335, Kansas City, Missouri 64121-9335 (or if by express delivery to 427 West 12th Street, Kansas City, Missouri 64105) and must be received no later than November 29, 2013.

 Looking at, I see no action can be taken without a meeting by written consent and shareholders cannot call special meetings.

Kansas City Southern’s ISS Governance QuickScore as of Apr 1, 2013 is 5. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 9; Compensation: 4. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosure.

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