Home Depot Inc (NYSE:HD), one of the stocks in my portfolio, sells a wide assortment of building materials, home improvement products and lawn and garden products and provides a number of services. Their annual meeting is coming up on 5/21/2015. ProxyDemocracy.org had the votes of four funds when I checked and voted on 5/14/2015. I voted with management 79% of the time and assigned Home Depot a proxy score of 79.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Home Depot 2015 proxy to enhance corporate governance and long-term value.
Home Depot: ISS Rating
From Yahoo! Finance: The Home Depot, Inc.’s ISS Governance QuickScore as of May 1, 2015 is 1. The pillar scores are Audit: 2; Board: 2; Shareholder Rights: 1; Compensation: 4. 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.
Home Depot: Compensation
Home Depot Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Craig A. Menear at about $10.2M in 2014. I’m using Yahoo! Finance to determine market cap ($145B) and Wikipedia’s rule of thumb regarding classification.
Home Depot 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 Home Depot pay was close to spot on median, considering inflation. Home Depot shares outperformed the S&P 500 over the most recent six month, one, two, five and ten year periods.
The MSCI GMIAnalyst report I reviewed gave Home Depot 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’s failure to establish and disclose specific standards regarding minimum equity retention standards for its CEO and directors may weaken the ability of equity awards to align executives’ interests with long-term value creation.
Despite the above issues, I voted For the pay plan.
Home Depot: Board of Directors and Board Proposals
I voted for all the directors except Karen L. Katen who apparently sits on five boards. That’s too many to devote full attention to each. She’s overboarded. Let’s relieve her of one position by voting against.
Home Depot: Auditor
I voted to ratify the auditor, since I saw no potential conflicts of interest.
Shareholder Proposals at Home Depot
As at every company where available, I voted in favor of John Chevedden’s proposal to move to an independent chair… gradually, without violating existing contracts. Management and governance are separate jobs.
Of course, I also voted for my wife’s proposal to allow special meetings to be called by those holding 10% of Home Depot’s shares. This right can be crucial in emergency situations. A somewhat similar proposal last year won 44% of the vote. Let’s go over 50% this year.
CorpGov Recommendations for Home Depot – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CALVERT | CBIS | TRILLIUM | DOMINI |
|---|---|---|---|---|---|---|
| 1a | Elect Director Ari Bousbib | For | For | For | Against | For |
| 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 Gregory D. Brenneman | For | For | For | Against | For |
| 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 J. Frank Brown | For | For | For | Against | For |
| 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 Albert P. Carey | For | For | For | Against | For |
| 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 Armando Codina | For | For | For | Against | For |
| 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 Helena B. Foulkes | For | For | For | Against | For |
| 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 Wayne M. Hewett | For | For | For | Against | For |
| 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 Karen L. Katen | Against | Against | For | Against | For |
| Calvert Social Index Fund: Director sits on the board at more than 4 public companies. 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 Craig A. Menear | For | For | For | Against | 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 Mark Vadon | For | For | For | Against | For |
| 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 KPMG LLP as Auditors | For | For | Against | For | 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 | For | Against | For | Against | Against |
| Calvert Social Index Fund: The company’s long term incentive compensation is not sufficiently tied to financial performance. | ||||||
| Trillium Asset Management: Research Total CEO compensation exceeds 7 million dollars. Total compensation to outside directors exceeds 100,000 dollars. | ||||||
| 4 | Require Independent Board Chairman | For | For | For | For | For |
| Calvert Social Index Fund: Calvert supports shareholder resolutions requiring the company establish an independent board chairperson. | ||||||
| Trillium Asset Management: Research A vote FOR this proposal is warranted given the importance of having an independent chairman of the board. | ||||||
| 5 | Amend Bylaws — Call Special Meetings | For | For | For | For | For |
| Calvert Social Index Fund: Calvert supports the right of shareholders to call a special meeting. | ||||||
| Trillium Asset Management: Research A vote FOR this proposal is warranted as it would further enhance shareholder rights. | ||||||
Corporate Governance Issues at Home Depot
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.
Home Depot Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
To be considered for inclusion in next year’s Proxy Statement and form of proxy, proposals by shareholders for business to be considered at the 2016 Annual Meeting of Shareholders must be submitted in writing by December 8, 2015 and must comply with the requirements of SEC Rule 14a-8. Proposals should be submitted to: Corporate Secretary, The Home Depot, Inc., 2455 Paces Ferry Road, N.W., Building C-22, Atlanta, Georgia 30339.
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.
Comments are closed.