FDX

FedEx: Proxy Vote Score 42

fedex-logoFedEx $FDX, which provides transportation, e-commerce, and business services in the United States and internationally, is one of the stocks in my portfolio. Their annual meeting is coming up on 9/29/2014. ProxyDemocracy.org had collected the votes of three funds when I checked on 9/20/2014.  I voted with management 42% of the time and assigned them a proxy score of 42.  View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the FedEx 2014 proxy in order to enhance corporate governance and long-term value.

FedEx ISS Rating

From Yahoo! Finance: FedEx Corporation’s ISS Governance QuickScore as of Sep 1, 2014 is 9. The pillar scores are Audit: 10; Board: 9; Shareholder Rights: 4; Compensation: 9. 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.

FedEx Compensation

FedEx Summary Compensation Table shows the highest paid named executive officer (NEO) was Founder, CEO, and Chairman Fredrick W. Smith, at about $14.2M.  I’m using Yahoo! Finance to determine market cap ($45B) and Wikipedia’s rule of thumb regarding classification. FedEx 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 FedEx’s pay is well above that. FedEx’s shares outperformed the S&P 500 over the most recent one, two and five year periods. GMIAnalyst

The GMIAnalyst report I reviewed gave FedEx an overall grade of ‘D.’ According to the report:

  • Executive perks for Mr. Smith stand out in his overall package. For instance, the nearly $500,0000 in perks he received for the 2013 compensation year included $340,237 in personal security services. In just the past three years, shareholders have paid more than $1 million toward the security of its CEO, with additional costs of over $300,000 for tax return and financial counseling services. It is the continued granting of time-vesting equity, however, that has resulted in the largest financial windfall for the FedEx founder. Absent meaningful performance metrics, stock options granted to executives vest ratably over a four year period. Annual option grants are typically north of $5 million in grant date value, and he has made a profit of more than $61 million on the exercise of options in just the last four years. In addition, the long-term incentive program provides a long-term cash payment covering a three year performance period based on a single performance measure. Cash-based long-term incentives do not align the risks of executives with that of shareholders.
  • The board has not established a formal clawback policy regarding its executive incentive pay. Such policies allow boards to recoup incentive payouts that may have been the undeserved result of erroneous or fraudulent financial reporting. 

Given the high pay and these issues, I voted against the pay package and the members of the compensation committee: Steven R. Loranger (Chairman), Marvin R. Ellison, Shirley Ann Jackson, Susan C. Schwab, and Paul S. Walsh. However, Loranger is not running, so I couldn’t vote against him.

FedEx Board

As indicated above, I voted against members of the compensation committee. I would have also voted against Walsh and Jackson because they serve on six and five boards respectively. That’s too many to really fulfill fiduciary duties at each. Additionally, I voted against Jabal and Ramo because neither own stock in our company. I’m investing in FedEx. I want my directors to also be investing in FedEx.

FedEx Accounting

I voted to ratify FedEx’s auditor, Ernst & Young LLP, since they don’t appear to be involved in a conflict of interest.

Shareholder Proposals at FedEx

My wife, Myra K. Young submitted a proposal to require proxy access. The Microsoft board objects:

The proposal’s threshold of 3% ownership for three years is too low. These ownership requirements do not represent a sufficiently substantial, long-term interest in FedEx that justifies the significant costs and disruption of possible regular proxy contests.

The Board apparently thinks $1.35 billion held for three years is too low. I don’t think so and neither should you. I voted for it.

Investor Voice submitted a proposal to count votes using a simple majority standard. The Board opposes the proposal, arguing “abstentions are included in the denominator as shares entitled to vote and have the same practical effect as a vote “against” a proposal.” Think about it. If you want to vote against a proposal, you vote ‘against’ it, not to abstain. I voted in favor of the proposal.

Amalgamated Bank’s LongView LargeCap 500 Index Fund submitted a proposal to prohibit hedging or pledging transactions involving FedEx shares awarded by the company. This makes sense because hedging and pledging such shares would negate the incentives such plans are designed to provide. I voted in favor. 

International Brotherhood of Teamsters submitted a proposal to do away with tax gross-ups. You pay your own taxes don’t you? So should they.  I voted in favor.

The Comptroller of the City of New York submitted a proposal to require disclosure of political contributions, such as direct and indirect contributions to political candidates, parties, or organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates. Citizens United v FEC limited the government’s ability to constrain corporate political expenditures. Justice Kennedy’s majority opinion in justifies the Court’s by pointing to the Internet.

With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.

Yet, corporations are not required to make the disclosures to shareowners as Justice Kennedy seems to have believed. How can we, as shareowners, hold corporate managers accountable when we do not know what candidates or measures they are supporting? Please vote in favor of this proposal.

CorpGov Recommendations for FedEx Below – Votes Against Board Position in Bold

NUM. PROPOSAL TEXT CorpGov CALVERT CBIS TRILLIUM
1.1 Elect Director James L. Barksdale For For For Against
1.2 Elect Director John A. Edwardson For For For Against
1.3 Elect Director Marvin R. Ellison Against For For Against
1.4 Elect Director Kimberly A. Jabal Against For For Against
1.5 Elect Director Shirley Ann Jackson Against Against For Against
1.6 Elect Director Gary W. Loveman For For For Against
1.7 Elect Director R. Brad Martin For For For Against
1.8 Elect Director Joshua Cooper Ramo For For For Against
1.9 Elect Director Susan C. Schwab Against For For Against
1.10 Elect Director Frederick W. Smith For For For Against
1.11 Elect Director David P. Steiner For For For Against
1.12 Elect Director Paul S. Walsh Against Against For Against
2 Advisory Vote to Ratify Named Executive Officers’ Compensation Against Against For Against
3 Ratify Auditors For For Against For
4 Adopt Proxy Access Right For Against Against Against
5 Reduce Supermajority Vote Requirement For Against Against N/A
6 Adopt Policy Prohibiting Hedging and Pledging Transactions For For For For
7 Adopt Policy Prohibiting Tax Payments on Restricted Stock Awards For For For For
8 Report on Political Contributions For For For For

Issues for Future Proposals at FedEx

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 20% of the voting power.

Mark your Calendar to Submit Future Proposals at FedEx

Stockholder proposals intended to be presented at FedEx’s 2015 annual meeting must be received by FedEx no later than April 20, 2015, to be eligible for inclusion in FedEx’s proxy statement and form of proxy for next year’s meeting. Proposals should be addressed to FedEx Corporation, Attention: Corporate Secretary, 942 South Shady Grove Road, Memphis, Tennessee 38120.

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 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 % 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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