NRG Energy Inc $NRG is one of the stocks in my portfolio. They are an integrated wholesale power generation and retail electricity company in the United States. Their annual meeting is coming up on 5/7/2015. ProxyDemocracy.org had the votes of funds when I checked and voted on 4/29/2015. I voted with management 69% of the time and assigned NRG Energy a proxy score of 69.
NRG Energy’s ISS Rating
From Yahoo! Finance (profile page): NRG Energy, Inc.’s ISS Governance QuickScore as of Apr 1, 2015 is 3. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 8; 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…. Compensation.
NRG Energy’s Compensation
NRG Energy’s Summary Compensation Table (p. 60) shows the highest paid named executive officer (NEO) was CEO David Crane at about $10.3M in 2014. I’m using Yahoo! Finance (summary page) to determine market cap ($8.6B) and Wikipedia’s rule of thumb regarding classification.
NRG Energy is a mid-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $4.9 million in 2013, so NRG Energy’s pay was substantially above than that, even factoring for inflation. NRG Energy shares underperformed the S&P 500 over the most recent six month, one, two, five and ten year periods.
The GMIAnalyst report I reviewed gave NRG Energy an overall grade of ‘C.’ According to the report:
- The CEO’s potential cash severance pay exceeds five times his or her annual pay, which occurs in only 4.1% of companies in the home market. Such excessive ‘golden parachute’ payments weaken the pay for performance linkage and enable pay for failure.
- 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.
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group, which is the case for 87.1% of companies in the S&P 500 index. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- 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.
- The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
Given the above, I voted against the pay package and the bonus plan.
NRG Energy 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: Walter R. Young, Chair
E. Spencer Abraham and William E. Hantke.
NRG Energy Accounting
I voted to ratify KPMG LLP as auditor, since less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at NRG Energy
There were none.
CorpGov Recommendations for NRG Energy – Votes Against Board Position in Bold
|1.1||Elect Director E. Spencer Abraham||Against||For|
|1.2||Elect Director Kirbyjon H. Caldwell||For||For|
|1.3||Elect Director Lawrence S. Coben||For||For|
|1.4||Elect Director Howard E. Cosgrove||For||For|
|1.5||Elect Director David Crane||For||For|
|1.6||Elect Director Terry G. Dallas||For||For|
|1.7||Elect Director William E. Hantke||Against||For|
|1.8||Elect Director Paul W. Hobby||For||For|
|1.9||Elect Director Edward R. Muller||For||For|
|1.10||Elect Director Anne C. Schaumburg||For||For|
|1.11||Elect Director Evan J. Silverstein||For||For|
|1.12||Elect Director Thomas H. Weidemeyer||For||For|
|1.13||Elect Director Walter R. Young||Against||For|
|2||Amend Executive Incentive Bonus Plan||Against||For|
|3||Advisory Vote to Ratify Named Executive Officers’ Compensation||Against||For|
|4||Ratify KPMG LLP as Auditors||For||Against|
Corporate Governance Issues at NRG Energy
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 amend certain charter provisions.
NRG Energy Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
In order for a stockholder proposal to be considered for inclusion in NRG’s Proxy Statement for next year’s Annual Meeting, our Corporate Secretary must receive the proposal no later than the close of business on November 27, 2015, which is the 120th day prior to the first anniversary of the date on which this Proxy Statement was first released to our stockholders in connection with the 2015 Annual Meeting. If we change the date of the 2016 Annual Meeting of Stockholders by more than 30 days from the anniversary of this year’s annual meeting, stockholder proposals must be received a reasonable time before we begin to print and mail the proxy materials for the 2016 Annual Meeting in order to be considered for inclusion in our Proxy Statement. Proposals must be sent via registered, certified, or express mail (or other means that allows the stockholder to determine when the proposal was received by the Corporate Secretary) to the Corporate Secretary, NRG Energy, Inc., 211 Carnegie Center, Princeton, New Jersey 08540. Proposals must contain the information required under our Bylaws, a copy of which is available upon request to our Corporate Secretary, and also must comply with the SEC’s regulations regarding the inclusion of stockholder proposals in Company sponsored proxy materials.
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.