Amazon

Amazon: Proxy Score 60

AmazonAmazon.com, Inc. (AMZN) operates as an online retailer in North America and internationally. It is one of the stocks in my portfolio. Their annual meeting is coming up on 6/10/2015. ProxyDemocracy.org had the vote of four funds when I checked and voted on 6/3/2015.  I voted with management 60% of the time and assigned Amazon a proxy score of 60.

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

Amazon: ISS Rating  

From Yahoo! Finance: Amazon.com Inc.’s ISS Governance QuickScore as of May 1, 2015 is 5. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 1; Compensation: 8. 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 Compensation.

Amazon: Compensation

Amazon Summary Compensation Table (p. 28) shows the highest paid named executive officer (NEO) was SVP for Consumer Business Jeffrey A. Wilke, at about $8.5M in 2014.  I’m using Yahoo! Finance to determine market cap ($203.3B) and Wikipedia’s rule of thumb regarding classification.

Amazon 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 Amazon’s pay is below that number. To its credit, Amazon shares out-performed the NASDAQ over the most recent one, two, five, and ten year periods.

The GMIAnalyst report I reviewed gave Amazon an overall grade of ‘F.’ According to the report:MSCI GMIAnalyst

  •  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.
  • The company’s failure to establish and disclose specific standards regarding minimum equity retention standards for its directors may weaken the ability of equity awards to align directors’ interests with long-term value creation.

With below median relative pay and, despite the above issues, I would have voted for the pay package if given an opportunity.

Amazon: Board of Directors and Board Proposals

I voted against Mr. Ryder because he is overboarded; sitting on four boards is too many to provide the attention needed. I voted against Mr. Gorelick, who heads the nominating committee, for failing to get greater diversity on the board.  

Amazon: Accounting

I voted to ratify Amazon’s auditor, since less than 25 percent of total audit fees paid are attributable to non-audit work.

Shareholder Proposals at Amazon

With regard to shareholder proposals, of course I voted FOR my (James McRitchie) proposal for proxy access. This is the most important issue at most companies, including Amazon. Director’s tend to be most faithful to those who invite them onto boards. Wouldn’t it be nice if that were shareholders? Vote FOR #3, proxy access.

I also voted FOR Investor Voice’s proposal for a report on political contributions. 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. See Citizens United: Five Years Later.

I also voted FOR Calvert’s proposal for a sustainability report and FOR SumOfUs’ proposal for a report on human rights. Amazon should be in the lead on these issues.

CorpGov Recommendations for Amazon – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov TRILLIUM DOMINI CALVERT  CBIS
1a Elect Director Jeffrey P. Bezos For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1b Elect Director Tom A. Alberg For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1c Elect Director John Seely Brown For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1d Elect Director William B. Gordon For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1e Elect Director Jamie S. Gorelick Against Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1f Elect Director Judith A. McGrath For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1g Elect Director Alain Moni For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1h Elect Director Jonathan J. Rubinstein For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1i Elect Director Thomas O. Ryder Against Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
1j Elect Director Patricia Q. Stonesifer For Against Against Against Against
Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares cast).The board does not include at least one minority director after the election.There is at least 30 percent diversity.
Calvert Social Index Fund: The board does not include at least one minority director after the election.
2 Ratify Ernst & Young LLP as Auditors For For For For Against
Trillium Asset Management: Research Less than 25 percent of total audit fees paid are attributable to non-audit work.
Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
3 Adopt Proxy Access Right For For For For For
Trillium Asset Management: Research A vote FOR this non-binding proposal is warranted as adoption of proxy access will enhance shareholder rights while providing necessary safeguards to the nomination process.
Calvert Social Index Fund: A vote FOR this non-binding proposal is warranted as adoption of proxy access will enhance shareholder rights while providing necessary safeguards to the nomination process.
4 Report on Political Contributions For For For For For
Trillium Asset Management: Research We support proposals calling for greater disclosure of political contributions.
Calvert Social Index Fund: Calvert supports shareholder resolutions seeking greater transparency regarding corporate political contributions.
5 Report on Sustainability, Including GHG Goals For For For For For
Trillium Asset Management: Research We support resolutions asking for sustainability reports.
Calvert Social Index Fund: Calvert supports shareholder proposals seeking reporting initiatives regarding corporate sustainability.
6 Report on Human Rights Risk Assessment Process For For For For For
Trillium Asset Management: Research We support resolutions on human rights risk assessments.
Calvert Social Index Fund: A vote FOR this resolution is warranted due to the following reasons:* Adoption of this proposal should serve to further strengthen the company’s stated commitment to protecting human rights.* Shareholders would also benefit from additional information regarding the policies the company has implemented to address human rights in its own operations and the relevant mechanisms it has implemented to oversee compliance with such polices.

Governance Issues at Amazon

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

  • No action can be taken without a meeting by written consent.
  • Shareholders can only be called by shareholders holding not less than 30% of the voting power.

Amazon Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Proposals of shareholders to be considered for inclusion in the proxy statement and proxy card for the 2016 Annual Meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 must be submitted in writing to the Corporate Secretary of Amazon.com, Inc., at Amazon.com, Inc., 410 Terry Avenue North, Seattle, Washington 98109, and must be received by 6:00 p.m., Pacific Time, on Saturday, December 26, 2015. The submission of a shareholder proposal does not guarantee that it will be included in our proxy statement.

Warnings

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 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 % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

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One Response to Amazon: Proxy Score 60

  1. James McRitchie June 11, 2015 at 6:09 am #

    $AMZN 41% vote favoring proxy access. Insiders hold over 18%, so not bad. We will win next year.

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