How I Voted: Morningstar (MORN) – Proxy Score 100%

Morningstar (MORN) is one of the stocks in my portfolio. Their annual meeting is coming up on 5/14/2013. had collected the votes of four funds when I checked on 5/9/2013.  I voted with management 100% 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.

MORN’s Summary Compensation Table shows Tom Idzorek of the Investment Division was the highest paid named executive officer (NEO) at about $1.4M in 2012. I’m using Yahoo! Finance to determine market cap ($3.1B) and Wikipedia’s rule of thumb regarding classification. SNI is a 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.

MORN’s pay is below median, even if we factor inflation.  Morningstar is hurt by the presence of a controlling shareholder and board independence questions. The roles of chairman and CEO are combined and their is no lead director. Morningstar’s annually elected board has eight members, six of whom are independent. The two non-independent directors are executives of the company: Founder, Chairman and CEO Joe Mansueto and Managing Director and President of Fund Research Don Phillips. Directors are elected by a majority vote. While a majority of directors are independent, the company engages in related-party transactions with institutions associated with all but two of its non-executive directors. 
Therefore, I would have voted against the pay package, if given the opportunity (perhaps not required of controlled companies?) and all the members of the compensation committee up for election: David A. Galloway, Chair and Ronald W. Tysoe. I also joined CalSTRS in withholding my vote from Jeffrey Sagansky.

How I voted (CorpGov) below:

Any proposal that a shareholder wishes to include in our proxy statement for presentation at our 2014 Annual Shareholders’ Meeting must be received by us no later than December 5, 2013. The shareholder proposal must be submitted, along with proof of ownership of our stock in accordance with Exchange Act Rule 14a-8(b)(2), to our principal executive offices, in care of our General Counsel and Corporate Secretary, by mail to Richard Robbins, Morningstar, Inc., 22 West Washington Street, Chicago, Illinois 60602. We suggest that the proposal be submitted by certified mail—return receipt requested. We strongly encourage any shareholder interested in submitting a proposal to contact our General Counsel and Corporate Secretary in advance of this deadline to discuss the proposal.

 Looking at, I see MORN allows special meetings to be called by shareholders holding not less than 20% of the voting power. The CEO has over 50% of the vote.

Morningstar Inc.’s ISS Governance QuickScore as of May 1, 2013 is 3. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 4; Compensation: 2. 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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