Yahoo! $YHOO, is one of the stocks in my portfolio. Their annual meeting is June 25, 2014. ProxyDemocracy.org had collected the votes of one fund when I checked and voted on 6/13/2014. I voted with the Board’s recommendations 56% of the time. Thus I assigned Yahoo! a proxy score of 62. View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Yahoo! proxy in order to enhance Yahoo’s corporate governance and long-term value.
ISS Rating
From Yahoo! Finance: Yahoo! Inc.’s ISS Governance QuickScore as of Jun 1, 2014 is 3. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 2; Compensation: 6. 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.
Compensation
Yahoo!’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Marissa A. Mayer at about $25M in 2013. I’m using Yahoo! Finance to determine market cap ($37B) and Wikipedia’s rule of thumb regarding classification. Yahoo! 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 Yahoo!’s pay is well above that. Yahoo! shares outperformed the NASDAQ over the most recent one and two year periods, while essentially matching it over the five year period. 
The GMIAnalyst report I reviewed gave Yahoo! an overall grade of ‘B.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 90.2% of companies in the home market. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
- 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.
- The CEO’s annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
- The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
Because pay was substantially above median and because of the problems noted by GMIAnalyst, I voted against the pay package, stock plan and compensation committee members: Maynard Webb (Chair) and Susan M. James.
Accounting
I voted to ratify the Yahoo! auditor.
Board Proposals
I voted in favor of the Yahoo! Board’s proposal to allow those continuously holding 25% of common shares for a year to hold a special meeting. I would have liked to see a 10% threshold but this proposal certainly represents movement in the right direction.
Shareholder Proposals
I voted in favor of all three shareowner proposals at Yahoo! The first is a proposal by John Harrington to establish a human rights committee. Harrington first introduced a similar proposal in 2007 (at least as far as I know). That proposal won a vote of 4%. More recently a similar proposal won 25% last year. It would be nice to see Yahoo! leading the way when it comes to transparency, accountability, and respect of civil liberties and human rights. It would also be great for business, since this is an increased public concern. Please vote for proposal 6.
I also voted in favor of proposal 7, submitted the Comptroller of the State of New York as Trustee for the New York State Common Retirement Fund, seeking to have various forms of lobbying expenditures disclosed. After Citizens United, political money from anonymous sources exploded. The Supreme Court assumed shareowners would reign in such contributions if they didn’t reflect shareowner values. But how can we reign in “dark money” if we don’t know where it goes? Vote in favor.
Of course I also voted in favor of proposal 8, submitted by Trillium Asset Management and others, asking the Board to report on political contributions. Like proposal 7, we can’t reign in such contributions if we don’t know where it goes. Vote in favor.
CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | DOMINI |
|---|---|---|---|
| 1.1 | Elect Director David Filo | For | Against |
| 1.2 | Elect Director Susan M. James | Against | Against |
| 1.3 | Elect Director Max R. Levchin | For | Against |
| 1.4 | Elect Director Marissa A. Mayer | For | Against |
| 1.5 | Elect Director Thomas J. McInerney | For | Against |
| 1.6 | Elect Director Charles R. Schwab | For | Against |
| 1.7 | Elect Director H. Lee Scott, Jr. | For | Against |
| 1.8 | Elect Director Jane E. Shaw | For | Against |
| 1.9 | Elect Director Maynard G. Webb, Jr. | Against | Against |
| 2 | Ratify NEO Compensation | Against | Against |
| 3 | Amend Omnibus Stock Plan | Against | Against |
| 4 | Ratify Auditors | For | For |
| 5 | Provide Right to Call Special Meeting | For | For |
| 6 | Establish Human Rights Committee | For | For |
| 7 | Report on Lobbying Payments & Policy | For | For |
| 8 | Report on Political Contributions | For | For |
Mark your Calendar
Shareholders interested in submitting a proposal for inclusion in the proxy materials we distribute for the 2015 annual meeting of shareholders may do so by following the procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). To be eligible for inclusion, shareholder proposals must be received by us no later than January 7, 2015 and must comply with the Company’s Bylaws and Rule 14a-8 under the Exchange Act regarding the inclusion of shareholder proposals in company-sponsored proxy materials. If we change the date of the 2015 annual meeting of shareholders by more than 30 days from the anniversary of this year’s meeting, shareholder proposals must be received a reasonable time before we begin to print and mail our proxy materials for the 2015 annual meeting of shareholders. Proposals should be sent to Yahoo’s Corporate Secretary at 701 First Avenue, Sunnyvale, California 94089.
Issues for Future Proposals
Looking at SharkRepellent.net.
- No action can be taken at Yahoo! without a meeting by written consent.
- Shareholders at Yahoo! cannot call special meetings.
Warnings
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.
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