FDX

FedEx: How I Voted – Proxy Score 38

FedExFedEx Corporation (NYSE:FDX) provides a portfolio of transportation, e-commerce and business services under the FedEx brand and is one of the stocks in my portfolio. Their next annual meeting is September 28, 2015. ProxyDemocracy.org had collected the votes of two funds when I checked and voted. I also picked up the votes of CalSTRS in my table below, since ProxyDemocracy doesn’t seem to be scraping their votes. I voted with the Board’s recommendations 38% of the time. View Proxy Statement

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

FedEx: ISS Rating

From Yahoo! Finance: FedEx Corporation’s ISS Governance QuickScore as of Sep 1, 2015 is 6. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 4; Compensation: 7. 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.

FedEx: Compensation

FedEx’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Fredrick W. Smith at about $13.8M. I’m using Yahoo! Finance to determine market cap ($41B) and Wikipedia’s rule of thumb regarding classification. FedEx 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 FedEx’s pay is well above that. FedEx’s shares outperformed the S&P 500 over the most recent two and five periods but underperformed during the most recent one and ten year periods.GMIAnalyst

The GMIAnalyst report I reviewed gave FedEx 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.
  • 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.

Because of the pay being substantially higher than median, performance has been average and the concerns expressed by GMIAnalyst, I voted against the pay package. As is my practice, I also voted against members of the compensation committee because they recommended the pay package to the board: Paul S. Walsh, Chairman, Marvin R. Ellison, Shirley Ann Jackson, and Susan C. Schwab. Ellison also failed to attend 75% of his meetings, so I would have voted against him on that basis as well. 

FedEx: Accounting

There is no reason to believe the auditor has rendered an inaccurate opinion or is engaged in poor accounting practices. Still, they have served for 13 years and FedEx has a history of significant restatements, special charges, and/or write-offs in the past two years. I voted against the auditor.

FedEx: Board Proposals

As indicated above, I voted against the pay plan, auditor and several directors.

FedEx: Shareholder Proposals

#4, For. John Chevedden has a proposal requesting FedEx adopt a policy that the chair of the board be an independent director, implemented at the next transition. I always vote in favor of such proposals. The CEO can’t be his own boss. Splitting the positions would allow the CEO to focus on execution without devoting so much time to the board. Adopting such a policy now will make succession planning easier. Founder Fred Smith will not be serving forever.

#5, For. The International Brotherhood of Teamsters General Fund submitted this proposal calling for an end to tax gross ups. Why should our company being paying the personal tax obligations of executives who receive restricted stock awards? Most companies dropped this practice years ago.

#6, For. Scott Stringer. NYC Comptroller, and my wife, Myra K. Young, submitted this shareholder proposal requesting that the company adopt a to recover unearned management bonuses. Many companies have adopted clawback provisions, as mandated by Dodd-Frank but not yet promulgated by the SEC. FedEx is dragging its feet.

#7, For. The Marco Consulting Group submitted this proxy access proposal using the same standards as NYC Comptroller used in so many filings. This is the most important vote on the proxy ballot. Boards will only be responsive to shareowners when shareowners can not only remove them from office but place their own candidates on the proxy.

#8, For. Scott Stringer. NYC Comptroller, in his capacity over a different fund than in #6, requests that FedEx report on the monetary and non-monetary expenditures that the company makes on political activities, including payments made to tax-exempt organizations which are used for political purposes. As I have pointed out in numerous posts, the Supreme Court’s 2010 decision, Citizens United, which basically eliminated caps on expenditures recognized the importance of disclosure to shareholders, saying:

[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

Disclosure is necessary for us to make informed decisions.

#9, For. Clean Yield Asset Management submitted this proposal requesting a report on lobbying policies and expenditures. The same logic applies as in #8 above.

#10, For. NorthStar Asset Management requests our company provide an analysis and report on the consistency between FedEx’s corporate values and its political contributions. NorthStar argues that since 2009 40% of FedEx’s contributions have been to politicians who opposed climate change legislation. They also contributed heavily to politicians voting against hate crimes legislation. 

FedEx says,

All contributions by FedEx’s non-partisan political action committee (“FedExPAC”) are approved by appropriate members of FedEx senior management and are based on a nonpartisan effort to advance and protect the interests of FedEx and our stockholders and employees. The political contributions made by FedExPAC are funded entirely by the voluntary contributions of our employees. No corporate funds are used.

So, this FedExPAC is a different entity with funds voluntarily contributed by employees. Yet, FedEx senior management decides where the money goes. Sounds like a corporate activity to me, even if they meet some sort of legal loophole. Contributions are made to protect our interests but FedEx won’t tell us how the funds support its own values or ours. If their contributions were actually congruent with FedEx’s own stated values they wouldn’t have a problem producing the requested report. Shareowners shouldn’t have to use a ballot proposal to get such information; it should be given freely and proudly. Like #8 and #9 this is an issue of the fundamental right of disclosure.

FedEx: CorpGov Recommendations Below – Votes Against Board Position in Bold

 # Proposal CorpGov CalSTRS CBIS Trillium
1A Elect James L. Barksdale For For For Against
1B Elect John A. Edwardson For For For Against
1C Elect Marvin Ellison Against Against Against Against
1D Elect Kimberly A. Jabal For For For Against
1E Elect Shirley Ann Jackson Against For For Against
1F Elect Gary W. Loveman For For For Against
1G Elect R. Brad Martin For For For Against
1H Elect Joshua C. Ramo For For For Against
1I Elect Susan C. Schwab Against For For Against
1J Elect Frederick W. Smith For For For Against
1K Elect David P. Steiner For Against For Against
1L Elect Paul S. Walsh Against For For Against
2 Advisory Vote on Exec Comp Against For For Against
3 Ratification of Auditor Against For Against For
4 Independent Chair For For For For
5 Tax on Restricted Stock For For For For
6 Clawback Unearned Bonuses For For For For
7 Proxy Access For For For For
8 Political Disclosure For For For For
9 Lobbying Disclosure For For For For
10 Align Corp Values and Pol Contributions For Against For For

FedEx: Issues for Future Proposals

 Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 20% of the voting power.

FedEx: Mark your Calendar

Stockholder proposals intended to be presented at FedEx’s 2016 annual meeting must be received by FedEx no later than April 19, 2016, to be eligible for inclusion in FedEx’s proxy statement and form of proxy for next year’s meeting. Proposals should be addressed to FedEx Corporation, Attention: Corporate Secretary, 942 South Shady Grove Road, Memphis, Tennessee 38120.

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 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.

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