Procter & Gamble Co (NYSE:PG) provides consumer packaged goods and is one of the stocks in my portfolio. Their next annual meeting is October 13, 2015. ProxyDemocracy.org had collected the votes of four funds when I checked and voted. I voted with the Board’s recommendations 56% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the Procter & Gamble proxy in order to enhance corporate governance and long-term value.
Procter & Gamble: ISS Rating
From Yahoo! Finance:The Procter & Gamble Company’s ISS Governance QuickScore as of Sep 1, 2015 is 3. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 3; 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: Board.
Procter & Gamble: Compensation
Procter & Gamble’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair A. G. Lafley at about $18.3M. I’m using Yahoo! Finance to determine market cap ($195B) and Wikipedia’s rule of thumb regarding classification. 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 Procter & Gamble’s pay is well above that. FedEx’s shares underperformed the S&P 500 over the most recent one, two, five and ten periods.
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.
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group.
- 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.
- 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 far below 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: W. James McNerney, Jr., Chair, Kenneth I. Chenault, Scott D. Cook, Margaret C. Whitman, and Mary Agnes Wilderotter.
Procter & Gamble: Accounting
There is no reason to believe the auditor has rendered an inaccurate opinion or is engaged in poor accounting practices. I voted for the auditor.
Procter & Gamble: Board Proposals
As indicated above, I voted against the pay plan and several directors.
Procter & Gamble: Shareholder Proposals
Of course, I voted in favor of my own proxy access proposal. The language of the proposal is essentially the same as those that have been winning majority votes all years… in fact a large proportion of companies are no longer opposing proxy access once submitted. This proposal gives the board more flexibility than what I recently submitted to QUALCOMM. Under the proposal the board has a year to develop bylaw language and bring it to shareholders for a vote. Despite that, the board’s opposition statement says, “we believe that adopting proxy access now, without further consideration, is not in the best interests of our shareholders.” They have plenty of time for further consideration on the details. The time for delaying on proxy access, which was first proposed at the SEC before World War II, is long gone.
Please vote for this proposal, which would allow long-term holders (3 years) of substantial stock (3%) to place nominees representing up to 25% of the board (3 out of current 13) on our corporate proxy. Proxy access is about power and accountability. Don’t be fooled by the board’s contention that “the proposal could increase the influence of special interest groups and short-term shareholders.” Proxy access only allows the names of a few nominees to be placed on the proxy. Those nominees will only serve on the board if elected. Obviously, if such shareholder nominees obtain more votes than board nominated candidates we would have to consider the board nominated candidates the “special interest” nominees. Vote for democracy; vote for choice; vote for proxy access.
Procter & Gamble: CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CALVERT | CBIS | TRILLIUM | DOMINI |
|---|---|---|---|---|---|---|
| 1a | Elect Director Francis S. Blake | For | For | For | For | For |
| 1b | Elect Director Angela F. Braly | For | For | For | For | For |
| 1c | Elect Director Kenneth I. Chenault | Against | For | For | Against | Against |
| 1d | Elect Director Scott D. Cook | Against | For | For | For | For |
| 1e | Elect Director Susan Desmond-Hellmann | For | For | For | For | For |
| 1f | Elect Director A.G. Lafley | For | For | For | For | Against |
| 1g | Elect Director Terry J. Lundgren | For | For | For | For | For |
| 1h | Elect Director W. James McNerney, Jr. | Against | For | For | For | For |
| 1i | Elect Director David S. Taylor | For | For | For | For | For |
| 1j | Elect Director Margaret C. Whitman | Against | For | For | For | Against |
| 1k | Elect Director Mary Agnes Wilderotter | Against | For | For | For | For |
| 1l | Elect Director Patricia A. Woertz | For | For | For | For | For |
| 1m | Elect Director Ernesto Zedillo | For | For | For | For | For |
| 2 | Ratify Deloitte & Touche LLP as Auditors | For | For | Against | For | For |
| 3 | Say on Executive Officer Pay | Against | For | For | Against | Against |
| 4 | Proxy Access | FOR | For | For | For | For
|
Procter & Gamble: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Unanimous written consent (default Ohio state statute).
- Supermajority vote requirement (80%) to approve mergers not approved by the board with a stockholder holding 5% or more of the common shares.
Procter & Gamble: Mark your Calendar
It is anticipated that the 2016 annual meeting of shareholders will be held on Tuesday, October 11, 2016. Pursuant to regulations issued by the SEC, to be considered for inclusion in the Company’s proxy statement for presentation at that meeting, all shareholder proposals must be received by the Company on or before the close of business on April 30, 2016. Any such proposals should be sent to The Procter & Gamble Company, c/o Secretary, One Procter & Gamble Plaza, Cincinnati, OH 45202-3315.
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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