Fluor Corporation (FLR), which provides engineering, procurement, construction, fabrication and modularization, commissioning and maintenance, and project management services worldwide, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/30/2015. ProxyDemocracy.org had the vote of one fund when I checked and voted on 4/23/2015. I voted with management 64% of the time and assigned Fluor Corporation a proxy score of 64.
Fluor Corporation’s ISS Rating
From Yahoo! Finance: Fluor Corporation’s ISS Governance QuickScore as of Apr 1, 2015 is 1. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 3; Compensation: 1. 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…. Shareholder Rights.
Fluor Corporation’s Compensation
Fluor Corporation’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair David T. Seaton at about $12M in 2014. I’m using Yahoo! Finance to determine market cap ($8.9B) and Wikipedia’s rule of thumb regarding classification.
Fluor Corporation is a mid-cap company. According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.9 million in 2013, so Fluor Corporation’s pay is substantially more than that, even factoring for inflation. Fluor Corporation shares underperformed the S&P 500 over the most recent six month, one, two, and five year periods. Fluor Corporation outperformed very slightly over the most recent 10 year period.
The GMIAnalyst report I reviewed gave Fluor Corporation 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.
- 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.
Pay of $12M for mediocre performance, combined with the above issues, led me to vote against the pay package plan.
Fluor Corporation 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: Peter J. Fluor, Chairman. Peter K. Barker, Joseph W. Prueher, and Matthew K. Rose.
Fluor Corporation Accounting
I voted to ratify Fluor Corporation’s auditor, Ernst & Young LLP, since far less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Fluor Corporation
With regard to shareholder proposals. I voted in favor of the proposal by the City of Philadelphia Public Employees Retirement System (“CPPERS”) and the Firefighters’ Pension System of the City of Kansas City, Missouri for a report on political contributions.
Justice Anthony Kennedy’s majority opinion in the 2010 Supreme Court case of Citizens United v FEC, which limited the government’s ability to constrain corporate expenditures for political purposes demonstrates a partial justification for the Court’s opinion:
With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. 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 Justice Kennedy referenced. We need that information so that we can hold the officers of Fluor Corporation accountable. Please joint me in voting in favor of this important measure.
CorpGov Recommendations for Fluor Corporation – Votes Against Board Position in Bold
|1A||Elect Director Peter K. Barker||Against||For|
|1B||Elect Director Alan M. Bennett||For||For|
|1C||Elect Director Rosemary T. Berkery||For||For|
|1D||Elect Director Peter J. Fluor||Against||For|
|1E||Elect Director Deborah D. McWhinney||For||For|
|1F||Elect Director Armando J. Olivera||For||For|
|1G||Elect Director Joseph W. Prueher||Against||For|
|1H||Elect Director Matthew K. Rose||Against||For|
|1I||Elect Director David T. Seaton||For||For|
|1J||Elect Director Nader H. Sultan||For||For|
|1K||Elect Director Lynn C. Swann||For||For|
|2||Ratify Executive Pay||For||For|
|3||Ratify Ernst & Young LLP as Auditors||For||Against|
|4||Report on Political Contributions||For||For|
Corporate Governance Issues at Fluor Corporation
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.
Fluor Corporation Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
Stockholders interested in submitting a Rule 14a-8 proposal for inclusion in the proxy materials for the annual meeting of stockholders in 2016 may do so by following the procedures prescribed in Rule 14a-8, under the Exchange Act. To be eligible for inclusion, stockholder proposals must be received by the company’s Secretary no later than the close of business on November 10, 2015. Any proposals should be sent to: Carlos M. Hernandez, Chief Legal Officer and Secretary, Fluor Corporation, 6700 Las Colinas Boulevard, Irving, Texas 75039.
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 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.