eBay Inc (EBAY), which enables commerce through three reportable segments: Marketplaces, Payments and Enterprise, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/1/2015. ProxyDemocracy.org had the votes of two funds when I checked and voted on 4/26/2015. I voted with management 67% of the time and assigned eBay a proxy score of 67.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the eBay 2015 proxy in order to enhance corporate governance and long-term value.
eBay’s ISS Rating
From Yahoo! Finance: eBay Inc.’s ISS Governance QuickScore as of Apr 1, 2015 is 6. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 7; 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. That gives us a quick idea of where to focus…. Board and Shareholder Rights.
eBay’s Compensation
eBay’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair John J. Donahoe at about $14M in 2014. I’m using Yahoo! Finance to determine market cap ($72B) and Wikipedia’s rule of thumb regarding classification.
eBay 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 eBay’s pay is substantially more than that, even factoring for inflation. eBay shares underperformed the NASDQ over the most recent one, two, and ten year periods. eBay outperformed over the most recent five year period.
The GMIAnalyst report I reviewed gave eBay 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. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
- 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.
- 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.
- A decline has occurred in the CEO’s equity holdings in the company over last year. Diminished executive exposure to company stock may work to reduce the alignment between the CEO’s interests and those of shareholders.
Pay of $14M for mediocre performance, combined with the above issues, led me to vote against the pay package and bonus plan.
eBay 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: Edward W. Barnholt (Chairman), David W. Dorman, William C. Ford, Jr., Kathleen C. Mitic and Thomas J. Tierney.
eBay Accounting
I voted to ratify eBay’s auditor, PricewaterhouseCoopers LLP, since far less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at eBay
With regard to shareholder proposals. I voted in favor of the proposal by John Chevedden to allow shareholders to act by written consent. This is common sense good corporate governance of they type I would introduce as well.
I also voted in favor of the proxy access proposal by the Comptroller of the City of New York. I submitted a nearly identical proposal and withdrew mine in favor of the Comptroller’s proposal, since they filed first. These are the most important proposals shareholders are voting on. Please support it.
Last, I voted in favor a the proposal by Arjuna Capital/Baldwin Brothers Inc. on behalf of Dylan Sage asking for eBay to report the percentage pay gap between male and female employees, policies to improve performance, and quantitative reduction targets. This would be valuable information in assessing eBay’s policies and practices in this important area.
CorpGov Recommendations for eBay – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CALVERT | CBIS |
|---|---|---|---|---|
| 1a | Elect Director Fred D. Anderson | For | For | For |
| 1b | Elect Director Anthony J. Bates | For | For | For |
| 1c | Elect Director Edward W. Barnholt | Against | For | For |
| 1d | Elect Director Jonathan Christodoro | For | Against | For |
| 1e | Elect Director Scott D. Cook | For | For | For |
| 1f | Elect Director John J. Donahoe | For | For | For |
| 1g | Elect Director David W. Dorman | Against | For | For |
| 1h | Elect Director Bonnie S. Hammer | For | For | For |
| 1i | Elect Director Gail J. McGovern | For | For | For |
| 1j | Elect Director Kathleen C. Mitic | Against | For | For |
| 1k | Elect Director David M. Moffett | For | For | For |
| 1l | Elect Director Pierre M. Omidyar | For | For | For |
| 1m | Elect Director Thomas J. Tierney | Against | For | For |
| 1n | Elect Director Perry M. Traquina | For | For | For |
| 1o | Elect Director Frank D. Yeary | For | For | For |
| 2 | Ratify Named Executive Officers’ Pay | For | For | For |
| 3 | Amend Executive Incentive Bonus Plan | For | For | For |
| 4 | Ratify Auditor PricewaterhouseCoopers LLP | For | For | Against |
| 5 | Provide Right to Act by Written Consent | For | For | For |
| 6 | Adopt Proxy Access Right | For | For | For |
| 7 | Report on Gender Pay Gap | For | For | For |
Corporate Governance Issues at eBay
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 25% of the voting power.
eBay Proxy Proposal Deadline for Next Year
eBay is yet another company that attempts to put up artificial barriers to discourage filing paperless proxy proposals. Mark your calendar to submit future proposals:
You may submit proposals for consideration at future annual stockholder meetings. To be considered for inclusion in the proxy materials for our 2016 Annual Meeting of Stockholders, your proposal must be received by our Corporate Secretary at our principal executive office no later than November 24, 2015. Your proposal must comply with the procedures and requirements set forth in Rule 14a-8 under the Securities Exchange Act of 1934, as amended. Your proposal should be sent via registered, certified or express mail to our Corporate Secretary at our principal executive office (2065 Hamilton Avenue, San Jose, California 95125); no facsimile submissions will be accepted. A stockholder proposal or a nomination for director that is received after this date will not be included in our proxy statement and proxy card, but will otherwise be considered at the 2016 Annual Meeting of Stockholders so long as it is submitted to our Corporate Secretary at our principal executive office no earlier than January 1, 2016 and no later than February 1, 2016 and otherwise in accordance with our Bylaws. We advise you to review our Bylaws, which contain these and other requirements with respect to advance notice of stockholder proposals and director nominations, including certain information that must be included concerning the stockholder and each proposal and nominee. Our Bylaws were filed with the SEC on Form 8-K on January 7, 2015, and can be viewed by visiting our investor relations website at http://investor.ebayinc.com/sec.cfm. You may also obtain a copy by writing to our Corporate Secretary at our principal executive office (2065 Hamilton Avenue, San Jose, California 95125).
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.
Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven. Additional findings by Mark Van Clieaf of Organizational Capital Partners, as reported in The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design:
- Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.
- Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.
- Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.
- More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.
- Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.
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