Whole Foods Market, Inc. (NASD:WFM) is a retailer of natural and organic foods and grocer. The Company has one operating segment, natural and organic foods supermarkets and is one of the stocks in my portfolio. Their next annual meeting is September 15, 2015. ProxyDemocracy.org had collected the votes of four funds when I checked and voted. I voted with the Board’s recommendations 87% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the Whole Foods Market proxy in order to enhance corporate governance and long-term value.
Whole Foods Market: ISS Rating
From Yahoo! Finance: Whole Foods Market, Inc.’s ISS Governance QuickScore as of Sep 1, 2015 is 3. The pillar scores are Audit: 1; 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.
Whole Foods Market: Compensation
Whole Foods Market’s Summary Compensation Table shows the highest paid named executive officer (NEO) was COO A.C. Gallo at about $2.8M. I’m using Yahoo! Finance to determine market cap ($11.43B) and Wikipedia’s rule of thumb regarding classification. Whole Foods Market 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 Whole Foods Market’s pay is well below that. Whole Foods Market’s shares underperformed the NASDAQ over the most recent one, two, five, and ten year periods.
The GMIAnalyst report I reviewed gave Whole Foods Market 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. 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.
Despite the above and the votes of Calvert, Domini and Trillium, I voted in favor of the pay package.
Whole Foods Market: Accounting
I voted to ratify the auditor since they have no apparent potential conflict of interest.
Whole Foods Market: Board Proposals
I voted in favor of the entire board, although I have reservations that several may not be independent because of long tenure or prior service as consultants. As indicated above, I voted for the pay plan. The Board is also requesting shareholders amend Article IV, Section A of the Company’s Amended and Restated Articles of Incorporation to increase the number of authorized shares of the Company’s common stock from 600,000,000 to 1,200,000,000.
As of June 18, 2015, there were 358,497,323 shares of Common Stock outstanding, 18,617,454 treasury shares, and 57,845,430 shares reserved for future issuance pursuant to equity compensation plans.
If shareholders approve the proposal, 783,657,247 shares of Common Stock would be authorized and available for issuance. The Board of Directors argues that the proposed increase will give the Company “greater flexibility” in planning future corporate needs. No other reason is provided.
The Board proposes 100% increase of the authorized share capital is unwarranted. The Company’s rationale for this increase is insufficient in providing an explanation for the need to double the authorized share capital. I am also concerned about the potential dilutive effect that this proposal may have. It could just cut the value of our shares in half.
I voted against the Board’s proposal to increase the authorized common stock.
Whole Foods Market: Shareholder Proposals
I withdrew my proxy access proposal when the board adopted a lite version, ao my proposal does not appear on the proxy ballot. (Proxy Access Lite: Victories at Whole Foods, H&R Block) I may try to amend those bylaws to make them more meaningful. Like all the funds disclosing their votes in advance, I voted in favor of the shareholder’s proposal to limit accelerated vesting, since that will further align the interests of executives with those of shareholders.
Whole Foods Market: CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CBIS | CALVERT | DOMINI | TRILLIUM | |
|---|---|---|---|---|---|---|---|
| 1.1 | Elect Director John Elstrott | For | For | For | For | Withhold | |
| 1.2 | Elect Director Shahid ‘Hass’ Hassan | For | For | For | For | Withhold | |
| 1.3 | Elect Director Stephanie Kugelman | For | For | For | For | Withhold | |
| 1.4 | Elect Director John Mackey | For | For | For | For | Withhold | |
| 1.5 | Elect Director Walter Robb | For | For | For | For | Withhold | |
| 1.6 | Elect Director Jonathan Seiffer | For | For | For | For | Withhold | |
| 1.7 | Elect Director Morris ‘Mo’ Siegel | For | For | For | For | Withhold | |
| 1.8 | Elect Director Jonathan Sokoloff | For | For | For | For | Withhold | |
| 1.9 | Elect Director Ralph Sorenson | For | For | For | For | Withhold | |
| 1.10 | Elect Director Gabrielle Sulzbreger | For | N/A | N/A | N/A | N/A | |
| 1.11 | Elect Director William ‘Kip’ Tindell, III | For | For | For | For | Withhold | |
| 2 | Ratify NEO Compensation | For | For | Against | Against | Against | |
| 3 | Ratify Ernst & Young as Auditors | For | Against | For | For | For | |
| 4 | Increase Authorized Common Stock | Against | For | For | For | For | |
| 5 | Limit Accelerated Vesting of Awards | For | For | For | For | For
|
Whole Foods Market: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- 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.
Whole Foods Market: Mark your Calendar
Any proposal that a shareholder of the Company wishes to have considered in connection with the 2016 Annual Meeting for inclusion in our Proxy Statement for that meeting pursuant to SEC Rule 14a-8 must be submitted to the Corporate Secretary at our principal executive offices no later than September 12, 2015 and otherwise comply with the requirements applicable to Rule 14a-8 submissions.
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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