H&R Block

H & R Block: How I Voted – Proxy Score 67

H&R BlockH & R Block Inc (NYSE:HRB) provides tax preparation and banking services and is one of the stocks in my portfolio. Their next annual meeting is September 10, 2015. ProxyDemocracy.org had collected the votes of one fund when I checked and voted. I voted with the Board’s recommendations 67% of the time. View Proxy Statement.

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

H & R Block: ISS Rating

From Yahoo! Finance: H&R Block, Inc.’s ISS Governance QuickScore as of Sep 1, 2015 is 5. The pillar scores are Audit: 2; Board: 1; Shareholder Rights: 8; Compensation: 4. 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: Shareholder rights.

H & R Block: Compensation

H & R Block’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO William C. Cobb at about $7.7M. I’m using Yahoo! Finance to determine market cap ($9.8B) and Wikipedia’s rule of thumb regarding classification. H&R Block 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 H&R Block’s pay is well above that. H&R Block’s shares outperformed the S&P 500 over the most recent one, two, five, but not ten year periods.GMIAnalyst

The GMIAnalyst report I reviewed gave H&R Block an overall grade of ‘B.’ 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.
  •  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.

Because of the pay being substantially higher than median and the concerns expressed by GMIAnalyst, I voted against the pay package, despite out-performance. As is my practice, I also voted against members of the compensation committee because they recommended the pay package to the board: Bruce C. Rohde, Chair, Tom D. Seip and James F. Wright.

H & R Block: Accounting 

I voted to ratify the auditor since they have no apparent potential conflict of interest.

H & R Block: Board Proposals

As indicated above, I voted against the pay plan.

H & R Block: Shareholder Proposals

I withdrew my proxy access proposal when the board adopted a lite version. (Proxy Access Lite: Victories at Whole Foods, H&R Block) In the future, I may try to amend those bylaws to make them more meaningful.

H & R Block: CorpGov Recommendations Below – Votes Against Board Position in Bold

Proposal CorpGov CalSTRS CBIS
1 Elect Paul J. Brown For For For
3 Elect Robert A. Gerard For For For
5 Elect David B. Lewis For For For
7 Elect Bruce C. Rohde Against For For
9 Elect Christianna Wood For For For
11 Ratification of Auditor For For Against

H & R Block: Issues for Future Proposals

 Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
  • Supermajority vote requirement (66.67%) to approve mergers (default Missouri state statute).
  • Proxy access lite provisions:
    • Limits groups to 20 stockholders
    • 20% of the board limit
    • 25% of the votes cast to be renominated for the next two (2) annual meetings.

H & R Block: Mark your Calendar

For a shareholder proposal to be considered for inclusion in the Company’s proxy statement for the 2016 annual meeting pursuant to Rule 14a-8 of the SEC, the Company must receive notice at our offices at One H&R Block Way, Kansas City, Missouri 64105, Attention: Corporate Secretary, on or before March 30, 2016. Applicable SEC rules and regulations govern the submission of shareholder proposals and our consideration of them for inclusion in next year’s proxy statement and form of proxy.

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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