Waste Connections: Proxy Vote Score 25

Waste ConnectionsWaste Connections, Inc. (NYSE:WCN) is one of the stocks in my portfolio. Waste Connections, Inc. is an integrated municipal solid waste services company that provides solid waste collection, transfer, disposal and recycling services. It provides non-hazardous exploration and production, waste treatment, recovery and disposal services. Their annual meeting is coming up on 5/15/2015. ProxyDemocracy.org had the votes of 0 funds when I checked and voted on 5/10/2015. I voted with management 25% of the time and assigned Waste Connections a proxy score of 25.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Waste Connections 2015 proxy in order to enhance corporate governance and long-term value.

Waste Connections: ISS Rating 

From Yahoo! Finance: Waste Connections Inc.’s ISS Governance QuickScore as of Apr 1, 2015 is 3. The pillar scores are Audit: 2; Board: 3; Shareholder Rights: 3; Compensation: 5. 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.

Waste Connections: Compensation

Waste Connections’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Ronald J. Mittelstaedt  at about $5.4M in 2014. I’m using Yahoo! Finance to determine market cap ($5.9B) and Wikipedia’s rule of thumb regarding classification.

Waste Connections is a mid-cap company.  According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.9 million in 2013, so  Waste Connections’ pay was within proper range. Waste Connections shares outperformed the S&P 500 over the most recent five and ten year periods, but substantially lagged during the last six months, one and two year periods.

MSCI GMIAnalystThe MSCI GMIAnalyst report I reviewed gave Waste Connections an overall grade of ‘F.’ 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.

I voted in favor of the pay program.

Waste Connections: Board of Directors and Board Proposals 

I’m concerned the board is getting stale with no women on the board and 80% of our directors having tenure of 14 years or more, especially given declining performance. Additionally, by continuing to operate with a combined CEO and chairman, they make it difficult to fully evaluate our CEO. Therefore, I voted against: Michael W. Harlan and William J. Razzouk, who each have 14 years on the board.

Waste Connections: Auditor

I voted against the auditor simply to send a message to Waste Connections… appoint a fully independent audit committee. Without one, I just can’t trust either the board or the auditor.

Shareholder Proposals at Waste Connections

There were none. Maybe shareholders are afraid to submit proposals. Waste Connections bypassed the normal SEC ‘no-action’ process, suing my wife and I in 2014 simply for submitting a proposal. In my experience, the courts in Texas don’t care what legal rights shareholders have, siding with companies regardless of the merits. Hopefully, that will change over time.

CorpGov Recommendations for Waste Connections – Votes Against Board Position in Bold

1.1Elect Director Michael W. HarlanAgainst
1.2Elect Director William J. RazzoukAgainst
2Ratify PricewaterhouseCoopers LLP as AuditorsAgainst
3Ratify Named Executive Officers’ CompensationFor

Corporate Governance Issues at Waste Connections

Looking at SharkRepellent.net for provisions unfriendly to shareowners:SharkRepellent

  • Classified board with staggered terms.
  • No action can be taken without a meeting by written consent.
  • Shareholders cannot call special meetings.

Waste Connections Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

To be considered for inclusion in next year’s proxy materials, stockholder proposals must be in writing and be received by the Secretary of Waste Connections, at the address set forth on the first page of this proxy statement, no later than the close of business (Central Standard Time) on December 4, 2015.  


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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