Microsoft Corporation (MFST), a technology company, develops, licenses, and supports software products, services, and devices worldwide. Microsoft is one of the stocks in my portfolio. Their annual meeting is on December 2, 2015. ProxyDemocracy.org had collected the votes of five funds when I checked. I voted with the Board’s recommendations 62% of the time. View Proxy Statement. iiWisdom provides a nice interactive viewing platform that makes Microsoft’s proxy a little easier to read. I recommend it.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Microsoft Corporation: ISS Rating
From Yahoo! Finance: Microsoft Corporation’s ISS Governance QuickScore as of Nov 1, 2015 is 5. The pillar scores are Audit: 2; Board: 1; Shareholder Rights: 5; Compensation: 7. 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 and Compensation.
Microsoft Corporation: Compensation
Microsoft’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Satya Nadella at $18.3M. I’m using Yahoo! Finance to determine market cap ($433.3B) and Wikipedia’s rule of thumb regarding classification. Microsoft 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 above that. Microsoft shares outperformed the NASDAQ over the most recent one, two, and five year time periods, but underperformed during the latest ten year time period.
The MSCI GMIAnalyst report I reviewed gave Microsoft 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.
- 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.
Given these issues and pay that was substantially above average, I voted against the plan and the directors on the compensation committee: John W. Stanton, Chair, Maria M. Klawe, G. Mason Morfit, Helmut Panke. The vote against Morfit is especially painful, since I admire him but, since the board acts in a black box, I don’t know what he recommended on pay.
Microsoft Corporation: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion or is engaged in poor accounting practices, so voted to confirm.
Microsoft Corporation: Board Proposals
I voted against the pay plan and all directors on the compensation committee. I also voted in against Teri L. List-Stoll, concerned about her aggregate time commitments, being a Senior Advisor to Kraft Foods Group, Inc., CFO at DICK’S Sporting Goods, and on the board of Danaher Corporation, as well as Microsoft. What if one or more of these companies faces a crisis during her tenure. I have doubts about how she would have the time to be fully engaged.
Microsoft Corporation: Shareholder Proposals
I negotiated relatively minor changes to my proxy access proposal with Microsoft to arrive at language that is still strong but is more agreeable to representatives of our company. See their press release Microsoft’s Board adopts new “Proxy Access for Director Nominations” policy and my post at Microsoft: Another Win for Proxy Access Lite. As a result, I agreed to withdraw the proposal, even though it does not meet all CII best practices.
Microsoft Corporation: CorpGov Recommendations Below – Votes Against Board Position in Bold
For the first time, I also checked a relatively new site, Proxy Insight. They report the Teacher Retirement System of Texas also voted against the pay package.
|1.1||Elect Director William H. Gates, lll||For||For||For||For||For||For|
|1.2||Elect Director Teri L. List-Stoll||Against||For||For||For||For||For|
|1.3||Elect Director G. Mason Morfit||Against||For||For||For||For||For|
|1.4||Elect Director Satya Nadella||For||For||For||For||For||For|
|1.5||Elect Director Charles H. Noski||For||For||For||For||For||For|
|1.6||Elect Director Helmut Panke||Against||For||For||For||For||For|
|1.7||Elect Director Sandra E. Peterson||For||For||For||For||For||For|
|1.8||Elect Director Charles W. Scharf||For||For||For||For||For||For|
|1.9||Elect Director John W. Stanton||Against||For||For||For||For||For|
|1.10||Elect Director John W. Thompson||For||For||For||For||For||For|
|1.11||Elect Director Padmasree Warrior||For||For||For||For||For||For|
|2||Ratify Named Executive Pay Plan||Against||Against||Against||Against||Against||Against|
Microsoft Corporation: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Unanimous written consent (default Washington state statute).
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
Microsoft Corporation: Mark Your Calendar
Shareholders who, in accordance with SEC Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed in connection with next year’s annual meeting must submit their proposals so they are received by the Corporate Secretary of Microsoft, by one of the means described below, no later than the close of business (5:30 p.m. Pacific Time) on June 21, 2016. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included.
Notices of intention to present proposals or nominate directors at the 2016 Annual Meeting, and all supporting materials required by our Bylaws, must be submitted by one of the following means:
- By Mail: MSC 123/9999, Office of the Corporate Secretary, Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399.
- Electronically: firstname.lastname@example.org.
We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
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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