American Tower Corp (NYSE:AMT), one of the stocks in my portfolio, operates and develops wireless and broadcast communications real estate with a portfolio of over 87,000 communications sites. Their annual meeting is coming up on 5/20/2015. ProxyDemocracy.org had the votes of one fund when I checked and voted on 5/13/2015. I voted with management 60% of the time and assigned American Tower a proxy score of 60.
American Tower: ISS Rating
From Yahoo! Finance: American Tower Corporation’s ISS Governance QuickScore as of May 1, 2015 is 6. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 1; Compensation: 9. 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.
American Tower: Compensation
American Tower’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair James D. Taiclet, Jr., at about $12.7M in 2014. I’m using Yahoo! Finance to determine market cap ($39B) and Wikipedia’s rule of thumb regarding classification.
American Tower 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 Tower’s pay last year was above median. American Tower’s shares outperformed the S&P 500 over the most recent five and ten year periods. However, it underperformed the S&P 500 over the most recent one and two year periods. Performance is slipping.
The MSCI GMIAnalyst report I reviewed gave American Tower an overall grade of ‘C.’ 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 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.
I voted against the pay plan.
American Tower: Board of Directors and Board Proposals
I voted against the directors on the compensation committee, since they recommended the pay package to the full board: Samme L. Thompson, Chairperson, Gustavo Lara Cantu and Pamela D.A. Reeve.
American Tower: Auditor
I voted against the auditor, following the lead of CBIS. It looks like fees beyond the normal audit may present a potential conflict of interest.
Shareholder Proposals at American Tower
CorpGov Recommendations for American Tower – Votes Against Board Position in Bold
|Elect Director Raymond P. Dolan
|Elect Director Carolyn F. Katz
|Elect Director Gustavo Lara Cantu
|Elect Director Craig Macnab
|Elect Director JoAnn A. Reed
|Elect Director Pamela D.A. Reeve
|Elect Director David E. Sharbutt
|Elect Director James D. Taiclet, Jr.
|Elect Director Samme L. Thompson
|Ratify Deloitte & Touche LLP as Auditors
|Advisory Vote to Ratify Named Executive Officers’ Compensation
Corporate Governance Issues at American Tower
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
American Tower Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
Pursuant to Rule 14a-8 promulgated under the Exchange Act, to be included in the Proxy Statement and form of proxy relating to our 2016 Annual Meeting, we must receive any proposals of stockholders intended to be presented at the meeting no later than December 11, 2015. In addition, any proposals must comply with the other requirements of 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.