Marriott International Inc $MAR is one of the stocks in my portfolio. They operate and franchise of hotels, corporate housing properties, and timeshare properties under numerous brand names which includes Bulgari Hotels & Resorts, The Ritz-Carlton Destination Club, The Ritz-Carlton, JW Marriott, EDITION, Autograph Collection, AC Hotels by Marriott, Renaissance Hotels, Marriott Hotels & Resorts, Courtyard by Marriott, SpringHill Suites by Marriott, Fairfield Inn & Suites by Marriott, Residence Inn by Marriott, TownePlace Suites by Marriott, Marriott ExecuStay, Marriott Executive Apartments, Marriott Vacation Club, Grand Residences by Marriott. Their annual meeting is coming up on 5/8/2015. ProxyDemocracy.org had the votes of two funds when I checked and voted on 4/30/2015. I voted with management 71% of the time and assigned Marriott International a proxy score of 71.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Marriott International 2015 proxy in order to enhance corporate governance and long-term value.
Marriott International’s ISS Rating
From Yahoo! Finance (profile page):Marriott International, Inc.’s ISS Governance QuickScore as of Apr 1, 2015 is 4. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 7; Compensation: 1. 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…. Board and Shareholder Rights.
Marriott International’s Compensation
Marriott International Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Arne M. Sorenson at about $14.9M in 2014. I’m using Yahoo! Finance (summary page) to determine market cap ($23B) and Wikipedia’s rule of thumb regarding classification.
Marriott International 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 Marriott International’s pay was above than that, even factoring for inflation. Marriott International shares underperformed the NASDAQ over the most recent one, two, five and ten year periods.
The GMIAnalyst report I reviewed gave Marriott International 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 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.
- 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.
It was a relatively close call, but I voted against the pay package in keeping my my mission of trying to hold back the continued ratcheting up of CEO pay. Sorenson’s pay went from $9.2M in 2013 to $14.9M. I don’t see justification for such a large increase.
Marriott International 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: Steven S Reinemund, Chair and Mary K. Bush. I also note that both serve on four boards. That makes me somewhat suspicious about the amount of time they devoted to reviewing and approving the pay package.
Marriott International Accounting
I voted to ratify Ernst & Young LLP as auditor, since less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Marriott International
Of course, I voted in favor of my wife’s proposal to allow a simple majority standard for all actions, including merger, consolidation, or sale of substantially all of the assets of the Company. Supermajority voting requirements have been found to be one of several entrenching mechanisms that are negatively related to company performance.
CorpGov Recommendations for Marriott International – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | DOMINI | CBIS |
|---|---|---|---|---|
| 1.1 | J.W. Marriott, Jr. | For | Against | For |
| 1.2 | Mary K. Bush | Against | For | For |
| 1.3 | Deborah Marriott Harrison | For | For | For |
| 1.4 | Frederick A. ‘Fritz’ Henderson | For | Against | For |
| 1.5 | Lawrence W. Kellner | For | For | For |
| 1.6 | Debra L. Lee | For | For | For |
| 1.7 | George Munoz | For | For | For |
| 1.8 | Steven S. Reinemund | Against | For | For |
| 1.9 | W. Mitt Romney | For | For | For |
| 1.10 | Arne M. Sorenson | For | For | For |
| 1.11 | Susan C. Schwab | For | For | For |
| 2 | Ratify Ernst & Young LLP as Auditors | For | For | Against |
| 3 | Ratify Executive Pay | Against | Against | For |
| 4 | Adopt Simple Majority Vote | For | For | For |
Corporate Governance Issues at Marriott International
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to approve mergers.
- Supermajority vote requirement (66.67%) to amend certain charter and certain bylaw provisions.
Marriott International Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
To be considered for inclusion in our proxy statement for the 2016 annual meeting of shareholders, shareholder proposals must be received at our offices no later than the close of business December 9, 2015. Proposals must comply with Rule 14a-8 under the Securities Exchange Act of 1934, and must be submitted in writing to the Corporate Secretary, Marriott International, Inc., Department 52/862, 10400 Fernwood Road, Bethesda, Maryland 20817.
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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