NextEra Energy Inc (NYSE:NEE), one of the stocks in my portfolio, generates, transmits, and distributes electric energy in the United States and Canada. Their annual meeting is coming up on 5/21/2015. ProxyDemocracy.org had the votes of two funds when I checked and voted on 5/14/2015. I voted with management 64% of the time and assigned NextEra Energy a proxy score of 64.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the NextEra Energy 2015 proxy to enhance corporate governance and long-term value.
NextEra Energy: ISS Rating
From Yahoo! Finance: NextEra Energy, Inc.’s ISS Governance QuickScore as of May 1, 2015 is 3. The pillar scores are Audit: 2; Board: 4; Shareholder Rights: 6; Compensation: 1. 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…. Shareholder Rights.
NextEra Energy: Compensation
NextEra Energy Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair James L. Robo at about $12.2M in 2014. I’m using Yahoo! Finance to determine market cap ($45B) and Wikipedia’s rule of thumb regarding classification.
NextEra Energy 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 NextEra Energy’s pay was higher than median, considering inflation. NextEra Energy shares outperformed the S&P 500 over the most recent five and ten year periods but underperformed in the most recent six month, one, and two year periods. Performance appears to be flagging yet CEO pay continues to climb.
The MSCI GMIAnalyst report I reviewed gave NextEra Energy 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.
- 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.
NextEra Energy: 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: Rudy E. Schupp, Chair, Robert M. Beall, II, Kenneth B. Dunn, Kirk S. Hachigian, and Hansel E. Tookes, II. I also voted against Amy B. Lane, who along with Tookes, is overboarded. Four boards is too many to give full attention, especially at a company involved in integrating a significant merger.
I voted For proposals 4, 5 and 6. Proposal 4: Approval of amendment to Article IV of the Charter to eliminate supermajority vote requirement for shareholder removal of a director. Proposal 5: Approval of amendment to eliminate Article VI of the Charter, which includes supermajority vote requirements regarding business combinations with interested shareholders. Proposal 6: Amend Charter to Eliminate Supermajority Vote for Certain Amendments to the Charter. I favor eliminating all supermajority requirements. In fact that’s the proposal we voted on last year, submitted by my wife. It won 73% of the vote.
I also voted in favor of Proposal 7: Approval of amendment to Article IV of the Charter to eliminate the “for cause” requirement for shareholder removal of a director. Although it would still require a vote of 75% of outstanding shares, it is a step in the right direction.
Don’t be fooled by Proposal 8, which would lower the threshold to call a special meeting. The Board here proposes 20%. However, my wife’s proposal seeks a 10% threshold. If you vote for both, the Board will see that as permission to use the higher threshold. Vote AGAINST.
NextEra Energy: Auditor
I voted to ratify the auditor, since I saw no potential conflicts of interest.
Shareholder Proposals at NextEra Energy
I voted in favor of Proposal 9, by the Comptroller of the State of New York, Thomas P. DiNapoli, to seek disclosure of political contributions. These resolutions are critical for our democracy. See my post Investors Seek Disclosure of Corporate Lobbying Expenses. You do like living in a democracy, right? In Citizens United v. FEC the US Supreme Court noted that shareowners could “determine whether their corporation’s political speech advances the corporation’s interest in making profits” and could discipline directors and executives who use corporate resources inconsistently with shareowner interests. However, unless shareowners have information about a company’s political speech and expenditures we will be unable to know whether such speech “advances the corporation’s interest in making profits” and will be unable to discipline directors and executives.
Of course I voted in favor of my wife’s Proposal 10 to reduce the threshold to call a special meeting. This right can be critical in an emergency situation. Please vote For #10.
CorpGov Recommendations for NextEra Energy – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CBIS | TRILLIUM |
|---|---|---|---|---|
| 1a | Elect Director Sherry S. Barrat | For | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1b | Elect Director Robert M. Beall, II | Against | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1c | Elect Director James L. Camaren | For | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1d | Elect Director Kenneth B. Dunn | Against | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1.e | Elect Director Naren K. Gursahaney | For | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1f | Elect Director Kirk S. Hachigian | Against | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1g | Elect Director Toni Jennings | For | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1h | Elect Director Amy B. Lane | Against | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1i | Elect Director James L. Robo | For | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1j | Elect Director Rudy E. Schupp | Against | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1k | Elect Director John L. Skolds | For | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1l | Elect Director William H. Swanson | For | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 1m | Elect Director Hansel E. Tookes, II | Against | For | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).There is both gender and racial diversity on the board.There is at least 30 percent diversity. | ||||
| 2 | Ratify Deloitte & Touche LLP as Auditors | For | Against | For |
| 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 | For | Against |
| Trillium Asset Management: Research Total CEO compensation exceeds 7 million dollars. Total compensation to outside directors exceeds 100,000 dollars. | ||||
| 4 | Eliminate Supermajority Vote Requirement | For | For | For |
| Trillium Asset Management: Research We support resolutions to reduce supermajority vote requirements. | ||||
| 5 | Eliminate Supermajority Vote Requirement | For | For | For |
| Trillium Asset Management: Research We support resolutions to reduce supermajority vote requirements. | ||||
| 6 | Amend Charter to Eliminate Supermajority Vote Requirement and Provide that the Vote Required is a Majority of Outstanding Shares, For Shareholder Approval of Certain Amendments to the Charter | For | For | For |
| Trillium Asset Management: Research A vote FOR these proposals is warranted given that the reduction in the supermajority vote requirements enhances shareholder rights. | ||||
| 7 | Amend Charter to Eliminate the ‘for cause’ Requirement for the Removal of a Director | For | For | For |
| Trillium Asset Management: Research A vote FOR this proposal is warranted, as the proposed amendment would enhance board accountability to shareholders. | ||||
| 8 | Amend Right to Call Special Meeting | Against | Against | Against |
| Trillium Asset Management: Research A vote AGAINST this item is warranted, because the 10 percent ownership threshold sought in the shareholder proposal in Item 10 would be preferable to the 20 percent threshold sought in this proposal, and because the company will not apply the lower threshold if this proposal receives majority support. | ||||
| 9 | Report on Political Contributions | For | For | For |
| Trillium Asset Management: Research We support proposals calling for greater disclosure of political contributions. | ||||
| 10 | Amend Bylaws — Call Special Meetings | For | For | For |
| Trillium Asset Management: Research A vote FOR this proposal is warranted, as it would enhance the current shareholder right to call special meetings. | ||||
Corporate Governance Issues at NextEra Energy
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Directors may only be removed for cause and only by the vote of 75% of the shares entitled to vote.
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
- Supermajority vote requirement (75%) to amend all bylaw provisions.
NextEra Energy Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
Proposals on matters appropriate for shareholder consideration consistent with Rule 14a-8 under the Exchange Act submitted by shareholders for inclusion in the proxy statement and form of proxy for the 2016 Annual Meeting of Shareholders must be received by the Corporate Secretary at the Company’s principal executive offices not later than December 2, 2015. The submission of such proposals by shareholders is subject to regulation by the SEC pursuant to 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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