American Express Company (NYSE:AXP) is a global payments and travel company. The company, through its subsidiaries, offers products and services including charge and credit payment card products and travel-related services to consumers and businesses around the world. It is one of the stocks in my portfolio. Their annual meeting is coming up on 5/11/2015. ProxyDemocracy.org had the votes of four funds when I checked and voted on 5/4/2015. I voted with management 42% of the time and assigned American Express a proxy score of 42.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the American Express 2015 proxy in order to enhance corporate governance and long-term value.
American Express’s ISS Rating
From Yahoo! Finance: American Express Company’s ISS Governance QuickScore as of Apr 1, 2015 is 4. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 5; Compensation: 3. 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.
American Express’s Compensation
American Express’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair K.I. Chenault at about $21.8M in 2014. I’m using Yahoo! Finance to determine market cap ($79B) and Wikipedia’s rule of thumb regarding classification.
American Express 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 American Express’s pay was substantially more than that, even factoring for inflation. American Express shares underperformed the S&P 500 over the most recent one, two, and ten year periods, while breaking even in the most recent five year period.
The GMIAnalyst report I reviewed gave American Express an overall grade of ‘D.’ 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.
Pay of almost $22M for mediocre performance, combined with the above issues, led me to vote against the pay package.
American Express 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: Robert D. Walter, Chairman, Ursula M. Burns, Peter Chernin. Samuel J. Palmisano and Ronald A. Williams. There were no other Board proposals other than the vote to affirm the auditor.
American Express Auditor
I voted to ratify American Express’ auditor, PricewaterhouseCoopers LLP, since less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at American Express
I voted in favor of item 4, a shareholder proposal by the New York City Comptroller and others asking the Board to disclosure of a comprehensive breakdown of its workforce by race and gender according to 10 employment categories. The financial services industry, of which American Express is a part, is characterized by the persistent and pervasive underrepresentation of minorities and women, particularly in senior positions. Federal law requires companies with 100 or more employees to annually submit an EEO-1 Report to the Equal Employment Opportunity Commission. Disclosure of the EEO-1 data would allow shareholders to evaluate the effectiveness of efforts to increase the diversity of American Express’ workforce at minimal cost.
I voted in favor of item 5 by Arjuna Capital/Baldwin Brothers to require a report on how the Board is overseeing privacy and data security risks. At most of the directors conferences I have attended in the last year, cybersecurity is one of the top 5 focus areas. Let’s hear what our Board is doing.
Of course, I voted in favor of item 6, Myra K. Young’s (my wife’s) proposal to authorize actions by written consent by shareholders. This right can be critical in extraordinary and emergency situations. It is a standard ‘good governance’ provision for every company.
I also voted in favor of item 7 by Walden, Trillium and the Benedictine Sisters of Virginia to disclose lobbying expenditures. In his written opinion in Citizens United, Justice Kennedy assumed shareholders already get this information and can, therefore, determine if the expenditures are in our interests. Yes, we have the right to such information but need to fight for it one corporation at a time. Please support this important measure.
I supported item 8, Kenneth Steiner’s proposal asking the Board to move to an independent chair. We should be doing this at every large corporation to ensure the Board is working for shareholders. It is simple good governance.
CorpGov Recommendations for American Express – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | DOMINI | CBIS | CALVERT | Your Vote | TRILLIUM |
|---|---|---|---|---|---|---|---|
| 1a | Charlene Barshefsky | For | For | For | For | Against | |
| 1b | Ursula M. Burns | Against | Against | For | For | Against | |
| 1c | Kenneth I. Chenault | For | Against | For | For | Against | |
| 1d | Peter Chernin | Against | For | For | For | Against | |
| 1e | Anne Lauvergeon | For | For | For | Against | Against | |
| 1f | Michael O. Leavitt | For | For | For | For | Against | |
| 1g | Theodore J. Leonsis | For | For | For | For | Against | |
| 1h | Richard C. Levin | For | For | For | For | Against | |
| 1i | Samuel J. Palmisano | Against | For | For | For | Against | |
| 1j | Daniel L. Vasella | For | For | For | For | Against | |
| 1k | Robert D. Walter | Against | For | For | For | Against | |
| 1l | Ronald A. Williams | Against | For | For | For | Against | |
| 2 | Ratify PricewaterhouseCoopers | For | For | Against | For | For | |
| 3 | Ratify Executive Pay | Against | Against | For | For | Against | |
| 4 | Employment Diversity Report | For | For | For | For | For | |
| 5 | Report on Board Oversight of Privacy and Data Security | For | For | For | For | For | |
| 6 | Right to Act by Written Consent | For | For | For | For | For | |
| 7 | Lobbying Payments and Policy | For | For | For | For | For | |
| 8 | Independent Board Chairman | For | For | For | For | For |
Corporate Governance Issues at American Express
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Unanimous written consent (default New York state statute).
- Special meetings can only be called by shareholders holding not less than 25% of the voting power determined to be Net Long Shares.
American Express Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
To be considered for inclusion in next year’s proxy statement, any shareholder proposals submitted in accordance with SEC Rule 14a-8 must be received by our Secretary at our principal executive offices no later than December 1, 2015. Any such proposals must comply with all of the requirements of 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 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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