TD Ameritrade

TD Ameritrade Holding: Proxy Score 62

TD AmeritradeTD Ameritrade Holding Corporation (AMTD) provides securities brokerage services and related technology-based financial services to retail investors, traders, and independent registered investment advisors (RIAs) in the United States. TD Ameritrade is one of the stocks in my portfolio. Their annual meeting is on February 18, 2016. ProxyDemocracy.org had collected no votes when I checked. I voted against the pay and bonus plans, therefore with the Board’s recommendations 62% 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. 

TD Ameritrade: ISS Rating

From Yahoo! Finance: TD Ameritrade Holding Corporation’s ISS Governance QuickScore as of Jan 1, 2016 is 5. The pillar scores are Audit: 1; Board: 8; Shareholder Rights: 7; 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: Board and Shareholder Rights.

TD Ameritrade: Compensation

TD Ameritrade’s Summary Compensation Table shows the highest paid named executive officer (NEO) was President and CEO Fredric J. Tomczyk at $7.6M. I’m using Yahoo! Finance to determine market cap ($15.6B) and Wikipedia’s rule of thumb regarding classification. TD Ameritrade is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3 million in 2014. TD Ameritrade shares underperformed the NASDAQ over the most recent one, two, five, and ten year time periods. GMIAnalyst

The MSCI GMIAnalyst report I reviewed gave TD Ameritrade 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.
  • 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.

Given these issues, TD Ameritrade underperformance, and the fact that pay was substantially above average, I voted against the pay plan, bonus plans and would have voted against the compensation committee members, Ms. Smith (chair) and Mr. James, if I had been given the opportunity. 

TD Ameritrade: Accounting

I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.

TD Ameritrade: Board Proposals

TD Ameritrade has a classified board, with staggered terms. 40% of the board has served for more than 9 years and only one is a woman. Still I voted in favor of the directors who are not on the compensation committee.

TD Ameritrade: Shareholder Proposals

None.

Proxy InsightTD Ameritrade: CorpGov Recommendations Below – Votes Against Board Position in Bold

I also checked Proxy Insight. Unfortunately, they had recorded to advance votes either.

# PROPOSAL TEXT CorpGov
1.1 Elect Director Bharat B. Masrani For
1.2 Elect Director Irene R. Miller For
1.3 Elect Director Todd M. Ricketts For
1.4 Elect Director Allan R. Tessler For
2 Advisory Vote to Ratify Named Executive Officers’ Compensation Against
3 Amend Executive Incentive Bonus Plan Against
4 Amend Executive Incentive Bonus Plan Against
5 Ratify Ernst & Young LLP as Auditors For

TD Ameritrade: Issues for Future Proposals

SharkRepellent.net Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • Classified board with staggered terms.
  • Plurality vote standard to elect directors with no resignation policy.
  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
  • Supermajority vote requirement (80%) to amend certain bylaw provisions.

TD Ameritrade: Mark Your Calendar

In order to be included in the Company’s Proxy Statement relating to its next Annual Meeting, stockholder proposals must be received no later than September 9, 2016 by the secretary of the Company at the Company’s principal executive office. The inclusion of any such proposal in such proxy material shall be subject to the requirements of the proxy rules adopted under the 1934 Act.
Corporate Secretary
TD Ameritrade Holding Corporation
6940 Columbia Gateway Drive
Columbia, Maryland 21046

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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