Procter and Gamble (PG): How I Voted – Proxy Score 60

P&GProcter and Gamble $PG is one of the stocks in my portfolio. Their annual meeting is coming up on 10/8/2013. had collected the votes of three funds when I checked on 10/1/2013.  I voted with management 60% 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.

PG’s Summary Compensation Table shows Robert A. McDonald, former CEO/Chair, was the highest paid named executive officer (NEO) at about $16M in 2013. Alan G. Lafley was appointed as Chairman of the Board, President, Chief Executive Officer of Procter & Gamble Co., effective May 23, 2013. I’m using Yahoo! Finance to determine market cap ($209B) and Wikipedia’s rule of thumb regarding classification. PG is a mega-cap company. According to Equilar, the median CEO compensation at large-cap corporations was $9.7 million in 2012. I did not find Equilar data for mega-cap CEOs.

www3.gmiratingsIt stands to reason that CEOs at mega-cap companies would be paid, on average, more than those at mid-caps. However, more than 50% more seems unreasonable. That sense was reinforced by an observation by GMIRatings that PG does not appear to limit long-term CEO pay incentives to above-median performance against a peer group. For these reasons, I voted against the pay plan and against all members of the compensation committee, since they recommended the plan to the full board.  Compensation committee members included:

  • W. James McNerney, Jr., Chair
  • Kenneth I. Chenault
  • Scott D. Cook
  • Margaret C. Whitman
  • Mary Agnes Wilderotter

I am concerned that seven board members are CEOs. Can they really devote the time necessary to be good board members of PG? Another concern is that four of our directors have served for more than 10 years. Should they really be considered independent?  Despite these concerns, they didn’t impact my vote.

With regard to other proposals:

  • Ratify Auditor – I voted for this proposal and will vote against such ratification only in highly unusual circumstances.
  • Reduce Supermajority Vote Requirements – At my recommendation, my wife submitted a proposal to request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws that calls for a greater than simple majority vote be changed to require a majority of the votes cast for and against such proposals. The vote was 59% in favor, 41% opposed. Although the proxy says these recommended changes “are the result of the Board’s ongoing review of our corporate governance principles,” I think victory of our proposal last year has something to do with this item. Of course, I voted in favor of it.
  • Approve Non-Employuee Director Omnibus Stock Plan – I voted in favor of the plan, which isn’t dilutive and helps align director interests with those of shareowners.

How I voted (CorpGov) below:

1aElect Director Angela F. BralyForForForFor
1bElect Director Kenneth I. ChenaultAgainstForAgainstFor
1cElect Director Scott D. CookAgainstForForFor
1dElect Director Susan Desmond-HellmannForForForFor
1eElect Director A.G. LafleyForForAgainstFor
1fElect Director Terry J. LundgrenForForAgainstFor
1gElect Director W. James McNerney, Jr.AgainstForAgainstFor
1hElect Director Margaret C. WhitmanAgainstForAgainstFor
1iElect Director Mary Agnes WilderotterAgainstForAgainstFor
1jElect Director Patricia A. WoertzForForForFor
1kElect Director Ernesto ZedilloForForForFor
2Ratify AuditorsForAgainstForFor
3Reduce Supermajority Vote RequirementForForForFor
4Approve Non-Employee Director Omnibus Stock PlanForForForAgainst
5Advisory Vote to Ratify Named Executive Officers’ CompensationAgainstForAgainstFor

Mark your calendar:

Pursuant to regulations issued by the SEC, to be considered for inclusion in the Company’s proxy statement for presentation at that meeting, all shareholder proposals must be received by the Company on or before the close of business on April 25, 2014. Any such proposals should be sent to The Procter & Gamble Company, c/o Secretary, One Procter & Gamble Plaza, Cincinnati, OH 45202-3315.

  Looking at, I see written consent requires a unanimous vote (default Ohio state statute), an absurdly high threshold. Special meetings can only be called by shareholders holding not less than 25% of the voting power (default Ohio state statute). That would ideally be set at something more like 10%.

From Yahoo! Finance, Procter & Gamble Company’s ISS Governance QuickScore as of Sep 1, 2013 is 2. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 5; Compensation: 1. 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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