The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. The company operates through four segments: Cleaning, Household, Lifestyle, and International. Clorox is one of the stocks in my portfolio. Their annual meeting is on November 18, 2015. ProxyDemocracy.org had collected the votes of two funds when I checked. I voted with the Board’s
recommendations 100% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Clorox: ISS Rating
From Yahoo! Finance: The Clorox Company’s ISS Governance QuickScore as of Nov 1, 2015 is 2. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 6; Compensation: 1. Brought to us 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.
Clorox: Compensation
Clorox’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Benno Dorer at about $7.9M. I’m using Yahoo! Finance to determine market cap ($15.6B) and Wikipedia’s rule of thumb regarding classification. Clorox 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 pay is well below that. Clorox shares outperformed the S&P 500 over the most recent one, two, five and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave Clorox an overall grade of ‘C.’ 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.
- 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.
Performance was substantially above and pay was below average. Therefore, despite the above quibbles, I voted for the pay package.
Clorox: 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.
Clorox: Board Proposals
I voted for the pay plan, bonus plan and all directors.
Clorox: Shareholder Proposals
None. In response to a proxy access proposal I filed earlier this year, Clorox adopted proxy access (press release, amended bylaws). I declared victory and withdrew my proposal. See my post Clorox Adopts Proxy Access Lite.
Clorox: CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CBIS | CALVERT |
|---|---|---|---|---|
| 1.1 | Elect Director Richard H. Carmona | For | For | For |
| 1.2 | Elect Director Benno Dorer | For | For | For |
| 1.3 | Elect Director Spencer C. Fleischer | For | For | For |
| 1.4 | Elect Director George J. Harad | For | For | For |
| 1.5 | Elect Director Esther Lee | For | For | For |
| 1.6 | Elect Director Robert W. Matschullat | For | For | For |
| 1.7 | Elect Director Jeffrey Noddle | For | For | For |
| 1.8 | Elect Director Rogelio Rebolledo | For | For | For |
| 1.9 | Elect Director Pamela Thomas-Graham | For | For | For |
| 1.10 | Elect Director Carolyn M. Ticknor | For | For | For |
| 1.11 | Elect Director Christopher J. Williams | For | For | For |
| 2 | ARatify Named Executive Officers’ Compensation | For | For | For |
| 3 | Ratify Ernst & Young LLP as Auditors | For | Against | For |
| 4 | Amend Executive Incentive Bonus Plan | For | For | For |
Clorox: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (80%) to amend certain charter provisions.
Clorox: Mark your Calendar
In the event that a stockholder wishes to have a proposal considered for presentation at the 2016 Annual Meeting of Stockholders and included in the Company’s proxy statement and form of proxy used in connection with such meeting, the proposal must be forwarded to the Company’s Secretary so that it is received no later than May 28, 2016. Any such proposal must comply with the requirements of Rule 14a-8 promulgated under the Exchange Act.
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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