General Electric Company (GE), which operates as an infrastructure and financial services company worldwide, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/22/2015. ProxyDemocracy.org had the vote of two funds when I checked and voted on 4/15/2015. I voted with management 57% of the time and assigned General Electric a proxy score of 57.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the General Electric Corporation 2015 proxy in order to enhance corporate governance and long-term value.
General Electric ISS Rating
From Yahoo! Finance: General Electric Company’s ISS Governance QuickScore as of Apr 1, 2015 is 3. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 1; Compensation: 8. 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 and the board.
General Electric Compensation
General Electric’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO and Chairman Jeffrey Immelt, at about $18.9M in 2014. I’m using Yahoo! Finance to determine market cap ($274B) and Wikipedia’s rule of thumb regarding classification.
General Electric 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 General Electric’s pay is considerably above that, even factoring for inflation. General Electric shares underperformed in comparison to the S&P over the most recent one, two, five, and ten year periods. Therefore, it is hard to give the CEO credit for above average performance when total shareholder returns have been below average in every period examined.
The GMIAnalyst report I reviewed gave General Electric an overall grade of ‘C.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 82.5% of companies in the home market. 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. While a majority (83.9%) of companies in the home market have not disclosed these targets, disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
With high relative pay, poor performance and the above issues, I voted against the pay package.
General Electric Board of Directors and Board Proposals
Generally, when I vote against the pay package I also vote against the compensation committee, since they recommended the pay package to the full board. Therefore, I voted against John J. Brennan (Chairman), James I. Cash, Jr., Marijn E. Dekkers, Andrea Jung, Robert W. Lane, Douglas A. Warner III.
Additionally, I think the following directors are overboarded, since they each sit on four boards: James E. Rohr, Robert W. Lane, James S. Tisch. However, I did not vote against them on that basis.
General Electric Accounting
I voted to ratify General Electrics’s auditor, KPMG, since less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at General Electric
With regard to shareholder proposals, here’s how I voted:
- I voted in favor of Martin Harangozo proposal for cumulative voting, which I always favor to ensure election of a director nominated by shareholders has a better chance of being elected.
- I also voted in favor of William Steiner’s good governance proposal to provide for decisions by written consent of shareholders in the same proportion as could take action at a meeting.
- Although sympathetic to Donald Gilson proposal to set aside one director nominee for a retired non executive employee, I could not support it. If retirees want to nominate a director they should approach long-term shareholders and use the proxy access process.
- I voted in favor of having GE adopt Holy Land Principle. GE claims their operations in Israel comply with these principles of nondiscrimination. If so, why not take a more public stand?
- I also vote in favor Kenneth Steiner’s proposal to Limit Accelerated Executive Pay. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance. I favor pay for performance.
CorpGov Recommendations for General Electric – Votes Against Board Position in Bold
Governance Issues at General Electric
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
Governance Issues at General Electric.
- Supermajority vote requirement (66.67%) to approve mergers (default New York state statute).
- Unanimous written consent (default New York state statute).
Mark your Calendar to Submit Future Proposals at General Electric.
Any shareowner proposals submitted in accordance with SEC Rule 14a-8 must be received at our principal executive offices no later than the close of business on November 11, 2015… Proposals should be addressed to Brackett B. Denniston III, Secretary, General Electric Company, 3135 Easton Turnpike, Fairfield, CT 06828… Proposals must conform to and include the information required by SEC Rule 14a-8.
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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