Medtronic (MDT): How I Voted – Proxy Score 68

medtronicMedtronic, $MDT is one of the stocks in my portfolio. Their annual meeting is coming up on 8/22/2013. had collected the votes of four funds when I checked on 8/14/2013.  I voted with management 68% 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. The rationale for peer group benchmarking is a mythological market for CEOs.

I’m delighted to see MDT moving forward on an issue I raised last year, removing supermajority requirements for changes to MDT’s bylaws and charter. My proposal got 66% of the vote. To better ensure MDT would implement my advisory proposal, I resubmitted it this year. That may have prompted MDT to submit their own similar management proposals, so the SEC allowed them to omit my proposal. Hopefully, even more shareowners will vote in favor of removing supermajority provisions this year.

MDT’s Summary Compensation Table shows Omar Ishrak, CEO/Chair, was the highest paid named executive officer (NEO) at about $9M in 2013. I’m using Yahoo! Finance to determine market cap ($55.3B) and Wikipedia’s rule of thumb regarding classification. MDT 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.

MDT’s pay is slightly above median when we factor inflation.  Since it is close to borderline, I looked to the other investors disclosing on and voted with the majority, for the plan.

GMIAnalystI am withholding my vote from Shirley Ann Jackson. In reviewing her profile and that of other directors on GMI Analyst, I see she serves five boards. I think that is at least one too many, especially if any of those boards must go into a crisis mode.

I also voted to withhold my vote from Victor J. DzauMichael O. LeavittDenise M. O’Leary and Preetha Reddy because none of them own shares in MDT. They have rights to restricted stock awarded to them for board service but that is not the same as owning shares.

Professor Stephen Bainbridge and I often disagree, but not on this issue:

I certainly agree that directors should have a fair bit of skin in the game. If nothing concentrates the mind like the prospect of being hanged in the morning, surely the prospect of financial ruin is a close second. (My good friend Charles Elson’s work in this area is seminal and excellent. See, e.g., this video and his article Director Compensation and the Management-Captured Board—The History of a Symptom and a Cure, 50 SMU L. REV. 127 (1996).)

Arbitrary dollar amounts, however, are a very bad idea. To somebody like Bill Gates, the prospect of losing $1 million is trivial. To somebody like me, the prospect of losing $250,000 would be so scary that I would refuse to serve on the board.

The right approach is to require the director to put a non-trivial percentage of his net worth at risk.

I voted against the omnibus stock plan because it will lead to further dilution. I voted in favor of each of the measures enhancing shareowner rights.

How I voted (CorpGov) below:

1.1Richard H. AndersonForWithholdForForFor
1.2Scott C. DonnellyForForForForFor
1.3Victor J. DzauWithholdForForWithholdFor
1.4Omar IshrakForWithholdForForFor
1.5Shirley Ann JacksonWithholdWithholdForWithholdWithhold
1.6Michael O. LeavittWithholdForForForFor
1.7EJames T. LenehanForForForForFor
1.8Denise M. O’LearyWithholdWithholdForWithholdFor
1.9Kendall J. PowellForForForForFor
1.10Robert C. PozenForForForForFor
1.11Preetha ReddyWithholdForForForFor
2Ratify AuditorsForAgainstAgainstForFor
3Ratify NEO CompensationForForForAgainstFor
4Amend Omnibus Stock PlanAgainstAgainstForAgainstAgainst
5Majority Voting for DirectorsForForForForFor
6Reduce Board Size SupermajorityForForForForFor
7Reduce Removal Director SupermajorityForForForForFor
8Reduce Amendment SupermajorityForForForForFor
9Rescind Fair Price ProvisionForForForForFor

Mark your calendar:

In order for a shareholder proposal to be considered for inclusion in Medtronic’s proxy statement for the 2014 Annual Meeting, the written proposal must be received by the Corporate Secretary at Medtronic’s executive offices no later than March 14, 2014. The proposal must comply with SEC regulations regarding the inclusion of shareholder proposals in Company-sponsored proxy materials. 

  Looking at, and assuming the measures enhancing shareowner rights are passed, special meetings to consider a business combination or any action that changes the composition of the board must be called by 25% or more of the voting power.

From Yahoo! Finance, Medtronic, Inc.’s ISS Governance QuickScore as of Aug 1, 2013 is 6. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 4; Compensation: 7. 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 disclosures.

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