Whole Foods Market, Inc. (WFM): How I Voted – Proxy Score 75

Whole Foods Market, Inc. $WFM is one of the stocks in my portfolio. Their annual meeting is coming up on 2/24/2014. ProxyDemocracy.org was down for maintenance when I checked and voted on 2/16/2013, so no voting advice there. Fortunately, I did get some help from PIRC. 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. 

WFM’s Summary Compensation Table shows co-CEO Walter Robb was the highest paid named executive officer (NEO) at about $3.25M in 2013. I’m using Yahoo! Finance to determine market cap ($19B) and Wikipedia’s rule of thumb regarding classification. WFM is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $9.7 million in 2012, so they are well under median. 

The GMIAnalyst report I reviewed gave WFM an overall ‘C’ rating. PIRC recommended against several directors for being of questionable independence because of serving more than 9 years, having a prior relationship with our company, and for other reasons. I share PIRC’s concerns but only withheld votes from the two outside directors who have served for more than 18 years. One is also 79 years old. These individuals may be great directors. However, WFM has five directors who have served for 10 or more years. I think it is time to refresh and voting against both directors, who also received the highest negative votes last year, sends that message.

PIRC voted against the executive compensation package because it wasn’t adequately tied to targets, at least according to what is disclosed. Similar concerns are expressed by GMI, such as

The company has not disclosed specific, quantifiable performance target objectives for the CEO, in contrast to 73.9% of companies in its home market that have provided such metrics. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.

Although, I found these problems troubling, I want ahead and voted in favor of the packages.

This year there are two meaningful shareowner proposals on the ballot. Institutional Shareholder Services, an influential proxy advisor service, recommends a yes-vote on both.

The first, item #4 Recovery of Unearned Management Bonuses, facilitates recovery of unearned incentive bonuses or other incentive payments to senior executives when performance targets were later reasonably determined to have not been achieved and/or resulted from fraud or error(s). The proposal was submitted by John Chevedden of Redondo Beach, California. Chevedden’s is a very reasonable request to ensure mistakes (or worse) don’t result in overpayment. I voted in favor of it.

I submitted the second shareowner proposal. Item #5 Confidential Voting. This is to level the playing field. Right now the board can see the votes coming in before the meeting but shareowners cannot. The board can then contact shareowners and pressure them to change their votes and the shareowners they contact only get one side of the story. That’s not reasonable. The rules should be changed so the board is not tempted into strong arming shareowners. Please vote in favor of Confidential Voting.

How I voted (CorpGov) below: