Fluor Corporation $FLR is one of the stocks in my portfolio. Their annual meeting is coming up on 5/1/2014. ProxyDemocracy.org had collected the votes of two funds when I checked and voted on 4/28/2014. I voted with management 13% of the time. View FLR’s Proxy Statement, which is user friendly.
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.
FLR’s Summary Compensation Table shows CEO and Chair David T. Seaton was the highest paid named executive officer (NEO) at about $12.5M in 2013. I’m using Yahoo! Finance to determine market cap ($12.5B) and Wikipedia’s rule of thumb regarding classification. FLR 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 FLR is over median. Therefore, I voted against the pay plan, stock plan and members of the Organization and Compensation Committee:
- Peter J. Fluor, Chairman
- James T. Hackett
- Kent Kresa (Retiring effective April 29, 2014, so I can’t vote against him)
- Dean R. O’Hare
- Joseph W. Prueher
The GMIAnalyst report I reviewed gave FLR an overall grade of ‘D’ for several reasons. Flagged areas included possible: Related Party Transactions, Issues of Board Integrity, Severance Vesting and Other Social Investigations.
With regard to shareowner proposals, of course I voted in favor of my own proposal to prospectively move FLR to an independent chair prospectively, so as not to violate any contractual obligation. As I mentioned in my video on the same subject at The Coca-Cola Company, this form of governance is endorsed by the Council of Institutional Investors and the Millstein Center for Corporate Governance, which says, “The time has come for independent chairmanship to become the default model of board leadership in corporate North America.” Ten years ago 25% of the S&P 500 had an independent chair. Now that’s 60%.
Our Board opposes my proposal, citing the fact they have a ‘lead independent director.’ Think about it. Someone tells you they are a ‘lead director,’ while another says they are chairman of the board. Who do you think has more influence? Why did thy call Frank Sinatra the chairman of the board, instead of lead director? The lead director can’t really sing, I Did it My Way. Let’s face it, a CEO shouldn’t be his or her own boss.
The Board also argues, “In 2010, a nearly identical stockholder proposal failed to pass. Our company and management, under the Board’s oversight, have continued to perform strongly since then.” Four years ago the consensus of opinion favoring an independent chair was not nearly as great. And, how well has FLR actually performed? During the four year period our Board claims FLR has performed ‘strongly’ the stock price has gone up 45%. During the same period the S&P 500 has gone up 52%.
How I voted (CorpGov) below using bold where my vote opposes the board’s recommendation:
|1A||Elect Director Peter K. Barker||For||For||For|
|1B||Elect Director Alan M. Bennett||For||For||For|
|1C||Elect Director Rosemary T. Berkery||For||Against||Against|
|1D||Elect Director Peter J. Fluor||Against||For||For|
|1E||Elect Director James T. Hackett||Against||For||For|
|1F||Elect Director Deborah D. McWhinney||For||For||For|
|1G||Elect Director Dean R. O’Hare||Against||For||For|
|1H||Elect Director Armando J. Olivera||For||For||For|
|1I||Elect Director Joseph W. Prueher||Against||For||For|
|1J||Elect Director Matthew K. Rose||For||For||For|
|1K||Elect Director David T. Seaton||For||For||For|
|1L||Elect Director Nader H. Sultan||For||For||For|
|1M||Elect Director Lynn C. Swann||For||For||For|
|2||Advisory Vote to Ratify Named Executive Officers’ Compensation||Against||For||Against|
|3||Approve Non-Employee Director Restricted Stock Plan||Against||For||Against|
|5||Require Independent Board Chairman||For||For||For|
Mark your calendar:
Stockholders interested in submitting a Rule 14a-8 proposal for inclusion in the proxy materials for the annual meeting of stockholders in 2015 may do so by following the procedures prescribed in Rule 14a-8, under the Exchange Act. To be eligible for inclusion, stockholder proposals must be received by the company’s Secretary no later than November 11, 2014. Any proposals should be sent to: Carlos M. Hernandez, Chief Legal Officer and Secretary, Fluor Corporation, 6700 Las Colinas Boulevard, Irving, Texas 75039.
Looking at SharkRepellent.net and special meetings can only be called by shareholders holding not less than 25% of the voting power. That seems high to me. I’d like to see that reduced to 10 or 15%.
From Yahoo! Finance, Fluor Corporation’s ISS Governance QuickScore as of Apr 1, 2014 is 5. The pillar scores are Audit: 1; Board: 9; Shareholder Rights: 5; Compensation: 4. 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.