United Natural Foods (UNFI): How I Voted – Proxy Score 75

unfi-logoUnited Natural Foods, Inc. $UNFI is one of the stocks in my portfolio. Their annual meeting is coming up on 12/18/2013. ProxyDemocracy.org had collected the votes of four funds when I checked and voted on 12/11/2013.  I voted with management 75% 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.

UNFI’s Summary Compensation Table shows CEO Steven L. Spinner, was the highest paid named executive officer (NEO) at about $4.8M in 2013. I’m using Yahoo! Finance to determine market cap ($3.4B) and Wikipedia’s rule of thumb regarding classification. UNFI is a mid-cap company. According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.7 million in 2012, so they are well under median. 


The GMIAnalyst report I reviewed gave UNFI an overall C rating but made an issue out of UNFI’s classified board, as they should. Classified boards reduce accountability by allowing shareowners to only vote for board members every third year. My proposal last year to declassify the board was endorsed by a vote of 88%.  Now management is providing shareowners an opportunity to vote to amend the charter and bylaws to bring UNFI up to date in that area of governance. Please vote in favor of these provisions.

This year there are two meaningful shareowner proposals on the ballot. The first, item #6, recommends UNFI reduce supermajority voting requirements to make it easier for shareowners to repeal bad bylaws, like the current ones for a classified board. My wife, Myra Young, and your truly (James McRitchie) submitted this measure, so you know we voted in favor of it.

The second shareowner proposal, item #7 on the ballot, comes from the Teamsters pension fund and is another good governance provision. In the event of a change in control of UNFI, any equity award granted to named executive officers would be paid out on a pro rata basis. Named executive officers don’t deserve a $12 million bonus simply because another company decides to acquire UNFI. Instead, they should earn it, based on performance. Apple, Chevron, ExxonMobil, IBM, Intel, Microsoft, even Occidental Petroleum, have limitations on accelerated vesting of unearned equity; UNFI should too.

Last year, UNFI held its annual meeting in a virtual-only foxhole, barring shareonwers from attending in person. Had they pulled the same stunt this year, I would have voted against the board members. Since they are instead holding a hybrid meeting, which allows attendance both in person or online, I’m voting for the board members, even though several have served for eleven years or more and two are insiders (independence concern).

How I voted (CorpGov) below:

1aElect Director Gail A. GrahamForAgainstAgainstAgainstAgainst
1bElect Director Ann Torre BatesForAgainstForAgainstAgainst
2Ratify AuditorsForAgainstAgainstForFor
3Advisory Vote to Ratify NEO CompensationForForForAgainstFor
4Amend Charter to Declassify the BoardForForForForFor
5Amend Bylaws to Declassify the BoardForForForForFor
6Reduce Supermajority Vote RequirementForForForForFor
7Pro-rata Vesting of Equity PlanForForForForFor
Mark your calendar:

Any proposal that a stockholder wishes to be considered for inclusion in our proxy statement for the 2014 Annual Meeting of Stockholders must be submitted to our corporate secretary, Joseph J. Traficanti, at 313 Iron Horse Way, Providence, Rhode Island 02908, no later than the close of business on July 9, 2014.

  Looking at SharkRepellent.net, I see directors may only be removed for cause and only by the vote of 66.67% of the shares entitled to vote. That could change if you vote in favor of item #6 to end supermajority requirements. No action can be taken without a meeting by written consent. Shareholders cannot call special meetings..

From Yahoo! Finance, United Natural Foods, Inc.’s ISS Governance QuickScore as of Dec 1, 2013 is 5. The pillar scores are Audit: 1; Board: 8; Shareholder Rights: 5; Compensation: 5. 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. Vote “for” every item on the proxy ballot and watch those scores go up next year.

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