Boeing Co (BA), which designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/27/2015. ProxyDemocracy.org had the vote of one fund when I checked and voted on 4/21/2015. I voted with management 47% of the time and assigned Boeing a proxy score of 47.
Boeing ISS Rating
From Yahoo! Finance: The Boeing Company’s ISS Governance QuickScore as of Apr 1, 2015 is 4. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 3; Compensation: 7. 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… compensation.
Boeing’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO and Chairman W. James McNerney, Jr., at about $29M in 2014. I’m using Yahoo! Finance to determine market cap ($108B) and Wikipedia’s rule of thumb regarding classification.
Boeing 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 Boeing’s pay is substantially more than that, even factoring for inflation. Boeing shares outperformed the S&P 500 over the most recent two and five year periods and very slightly underperformed over the most recent one and ten year periods.
The GMIAnalyst report I reviewed gave Boeing an overall grade of ‘D.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination. 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, although disclosure of such metrics are essential for investors to assess the rigor of incentive programs. How do we know Boeing will ever really outperform?
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
Sky-high pay of $29M for continued median performance combined with the above issues doesn’t seem right. I voted against the pay package.
Boeing Board of Directors and Board Proposals
Generally, when I vote against the pay package I also vote against the compensation committee, since they recommend the pay package to the full board. Therefore, I voted against: Arthur D. Collins, Jr., Chair, David L. Calhoun, Kenneth M. Duberstein, Ronald A. Williams and Mike S. Zafirovski.
I am also concerned that four board members have served for 11 years or more and none have served for less than 5. Four board members serve on 4 boards, which I consider overboarded. Although I am not voting against any directors because of this factor, I would like to see more board refreshment.
I voted to ratify Boeing’s auditor, Deloitte & Touche LLP, since far less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Boeing
With regard to shareholder proposals. I voted for all of them, since they were all of the type I would submit myself. These are all standard good governance proposals and deserve widespread support.
CorpGov Recommendations for Boeing – Votes Against Board Position in Bold
|1a||David L. Calhoun||Against||For|
|1b||Arthur D. Collins, Jr.||Against||For|
|1c||Kenneth M. Duberstein||Against||For|
|1d||Edmund P. Giambastiani, Jr.||For||For|
|1e||Lawrence W. Kellner||For||For|
|1f||Edward M. Liddy||For||For|
|1g||W. James McNerney, Jr.||For||For|
|1h||Susan C. Schwab||For||For|
|1i||Ronald A. Williams||Against||For|
|1j||Mike S. Zafirovski||Against||For|
|2||Ratify Executive Officers’ Pay||Against||For|
|3||Ratify Deloitte & Touche LLP as Auditors||For||Against|
|4||Claw-back of Payments under Restatements||For||For|
|5||Require Independent Board Chairman||For||For|
|6||Provide Right to Act by Written Consent||For||For|
|7||Report on Lobbying Payments and Policy||For||For|
Corporate Governance Issues at Boeing
Looking at SharkRepellent.net for provisions unfriendly to shareowners: Governance Issues at Boeing, it couldn’t get much worse.
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
Boeing Proxy Proposal Deadline for Next Year
Mark your Calendar to Submit Future Proposals:
If you are interested in submitting a proposal for inclusion in our proxy statement for the 2016 annual meeting, you must follow the procedures outlined in Rule 14a-8 of the Securities Exchange Act of 1934. To be eligible for inclusion, we must receive such proposal at our principal corporate offices in Chicago, Illinois at the address below no later than Saturday, November 14, 2015. In addition, our By-Laws require that we be given advance written notice for nominations for election to our Board of Directors and other matters that shareholders wish to present for action at an annual meeting other than those to be included in our proxy statement under Rule 14a-8. The Corporate Secretary must receive such notice at the address noted below between the close of business on Tuesday, December 29, 2015, and the close of business on Thursday, January 28, 2016. Any such notice must meet other requirements specified in our By-Laws, which are publicly available on our website. Any proposals, notices or nominations must be sent to: Office of the Corporate Secretary, The Boeing Company, 100 North Riverside Plaza, MC 5003-1001, Chicago, Illinois 60606-1596.
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.