3M Co (MMM), which operates as a diversified technology company worldwide, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/12/2015. ProxyDemocracy.org had the vote of four funds when I checked and voted on 5/7/2015. I voted with management 58% of the time and assigned 3M a proxy score of 58.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the 3M 2015 proxy in order to enhance corporate governance and long-term value.
3M ISS Rating
From Yahoo! Finance: 3M Company’s ISS Governance QuickScore as of Apr 1, 2015 is 2. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 3; Compensation: 2. 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… the board and shareholder rights.
3M Compensation
3M Company’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO and Chairman Inge G. Thulin, at about $37.3M in 2014. I’m using Yahoo! Finance to determine market cap ($103B) and Wikipedia’s rule of thumb regarding classification.
3M 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 3M’s pay is considerably above that, even factoring for inflation. 3M shares outperformed in comparison to the S&P 500 over the most recent one, two, five, and ten year periods.
The GMIAnalyst report I reviewed gave 3M 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.
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group, which is the case for 87.1% of companies in the S&P 500 index. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- 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.
I’m willing to give credit for outperformance but with such high relative pay and the above issues, I voted against the pay package.
3M 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 Michael L. Eskew, Chair, Vance D. Coffman, Edward M. Liddy and Robert J. Ulrich. Additionally, I consider Edward M. Liddy overboarded, since he sits on four boards.
I am also concerned that four board members have served for 12 years or more. Although I am not voting against any directors because of this factor, I would like to see more board refreshment.
3M Accounting
I voted to ratify 3M’s auditor, PriceWaterhouseCoopers, since far less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at 3M
With regard to shareholder proposals, none appeared on the proxy.
CorpGov Recommendations for 3M – Votes Against Board Position in Bold
| NUM. | PROPOSAL TEXT | CorpGov | DOMINI | CALVERT SOCIAL INDEX | CBIS | TRILLIUM |
|---|---|---|---|---|---|---|
| 1a | Elect Director Linda G. Alvarado | For | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1b | Elect Director Sondra L. Barbour | For | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1c | Elect Director Thomas ‘Tony’ K. Brown | For | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1d | Elect Director Vance D. Coffman | Against | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1e | Elect Director Michael L. Eskew | Against | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1f | Elect Director Herbert L. Henkel | For | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1g | Elect Director Muhtar Kent | For | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1h | Elect Director Edward M. Liddy | Against | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1i | Elect Director Inge G. Thulin | For | Against | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 1j | Elect Director Robert J. Ulrich | Against | For | For | For | Against |
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | ||||||
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||||
| 2 | Ratify PricewaterhouseCoopers LLP as Auditors | For | For | For | Against | For |
| Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work. | ||||||
| Trillium Asset Management: Research Less than 25 percent of total audit fees paid are attributable to non-audit work. | ||||||
| 3 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | Against | Against | For | Against |
| Calvert Social Index Fund: The magnitude of CEO pay exceeds the 75th percentile of the company’s peer group. | ||||||
| Trillium Asset Management: Research Total CEO compensation exceeds 7 million dollars. Total compensation to outside directors exceeds 100,000 dollars. | ||||||
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
Governance Issues at 3M.
- 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.
Mark your Calendar to Submit Future Proposals at 3M:
In order for a stockholder proposal to be considered for inclusion in 3M’s Proxy Statement for next year’s Annual Meeting, our Corporate Secretary must receive the proposal by November 26, 2015. Such proposals must be sent via registered, certified, or express mail (or other means that allows the stockholder to determine when the proposal was received by the Company) to: Gregg M. Larson, Vice President, Deputy General Counsel and Secretary, 3M Company, 3M Center, Building 220-14W-06, St. Paul, MN 55144-1000. Such proposals must comply with the Securities and Exchange Commission’s regulations regarding the inclusion of stockholder proposals in Company sponsored proxy materials, such as the stockholder continuing to own a minimum number of shares until the Annual Meeting and appearing in person or through an authorized representative at the meeting to present the proposal.
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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