Medtronic, Inc. (MDT): Proxy Vote Score 59

medtronicMedtronic $MDT, which manufactures and sells device-based medical therapies worldwideis one of the stocks in my portfolio. Their next annual meeting is August 21, 2014. had collected the votes of three funds when I checked and voted on 8/17/2014. I voted with the Board’s recommendations 59% of the time and assigned them a proxy score of 59. View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Medtronic proxy in order to enhance corporate governance and long-term value.

Medtronic’s ISS Rating

From Yahoo! Finance: Medtronic, Inc.’s ISS Governance QuickScore as of Aug 1, 2014 is 7. The pillar scores are Audit: 10; Board: 8; Shareholder Rights: 7; Compensation: 2. 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. That gives us a quick idea of where to focus.

Medtronic’s Compensation

Medtronic’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Omar Ishrak, at about $12.1M.  I’m using Yahoo! Finance to determine market cap ($63B) and Wikipedia’s rule of thumb regarding classification. Medtronic is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Medtronic’s pay is above that. Medtronic’s shares outperformed the S&P 500 over the most recent five year period but lagged over the two and tied over the one year periods. GMIAnalyst

The GMIAnalyst report I reviewed gave Medtronic an overall grade of ‘F.’ 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 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 above median, performance is slipping and the problems noted by GMIAnalyst, I voted against the pay package and members of the compensation committee: Kendall J. Powell, Chair, Richard H. Anderson, Scott C. Donnelly and Denise M. O’Leary. 

Medtronic’s Board

As indicated above, I voted against members of the compensation committee. I also voted against directors Preetha Reddy and Dr. Shirley Ann Jackson, Ph.D. According to reports, Reddy has board attendance issues, missing at least 75% of board and committee meetings. GMI reports that Jackson sits on five boards; she’s overboarded. In my opinion, neither can devote proper time to their duties at Medtronic under these circumstances. Just out of curiosity, I checked CalSTRS separately, in case their votes hadn’t been picked up by ProxyDemocracy. They voted against Jackson, Powell and Reddy.

Medtronic’s Accounting

I voted to ratify the Medtronic’s auditor, PricewaterhouseCoopers LLP.

Medtronic’s Board Proposals

I voted in favor of the Board’s proposals. I generally support employee stock purchase plans where they are not too dilutive, since they provide inceptives for performance by facilitating a real stake in the business. The other proposals improve corporate governance. It should be noted that I submitted a proposal in 2012 to Medtronic, which received a positive vote of 66%, so the measure this year represents the board’s agreement.

Shareholder Proposals

None this year.

CorpGov Recommendations Below – Votes Against Board Position in Bold

1.1Elect Director Richard H. AndersonWithholdForForFor
1.2Elect Director Scott C. DonnellyWithholdForForFor
1.3Elect Director Omar IshrakForForForFor
1.4Elect Director Shirley Ann JacksonWithholdWithholdForFor
1.5Elect Director Michael O. LeavittForForForFor
1.6Elect Director James T. LenehanForForForFor
1.7Elect Director Denise M. O’LearyWithholdForForFor
1.8Elect Director Kendall J. PowellWithholdForForFor
1.9Elect Director Robert C. PozenForForForFor
1.10Elect Director Preetha ReddyWithholdWithholdWithholdWithhold
2Ratify AuditorsForForAgainstFor
3Advisory Vote to Ratify Named Executive Officers’ CompensationAgainstForForAgainst
4Approve Qualified Employee Stock Purchase PlanForForForFor
5Adopt Majority Voting for Uncontested Election of DirectorsForForForFor
6Reduce Supermajority Vote Requirement for Establishing Range For Board SizeForForForFor
7Reduce Supermajority Vote Requirement for Removal of DirectorsForForForFor
8Reduce Supermajority Vote Requirement for Amendment of ArticlesForForForFor

Issues for Future Proposals at Medtronic  

 Looking at for provisions unfriendly to shareowners:

  • Plurality vote standard to elect directors with no resignation policy, hopefully addressed this year.
  • Supermajority vote requirement (75%) to amend certain bylaw provisions, hopefully at least partially addressed this year.
  •  Directors may be removed with or without cause but only by the vote of 75% of the shares entitled to vote.
  • Unanimous written consent (default Minnesota state statute).

Mark your Calendar to Submit Future Proposals at Medtronic

In order for a shareholder proposal to be considered for inclusion in Medtronic’s proxy statement for the 2015 Annual Meeting, the written proposal must be received by the Corporate Secretary at Medtronic’s executive offices no later than March 13, 2015. The proposal must comply with SEC regulations regarding the inclusion of shareholder proposals in Company-sponsored proxy materials.All submissions to, or requests from, the Corporate Secretary should be made to Medtronic’s principal executive offices at 710 Medtronic Parkway, Minneapolis, Minnesota 55432, Attn: Corporate Secretary.


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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