Starbucks Corporation

Starbucks Corporation: SBUX Proxy Score 59

Starbucks CorporationStarbucks Corporation (SBUX, $SBUX) is the roaster, marketer and retailer of specialty coffee. Starbucks Corporation is one of the stocks in my portfolio. Their annual meeting is coming up on March 23, 2016. ProxyDemocracy.org had collected the votes of four funds when I checked. I voted AGAINST the pay package, bonus plan, members of the compensation committee and the proposal by the National Center for Public Policy Research. I voted FOR proxy access, the auditor and most of the Board. I voted with the Board’s recommendations 59% 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.

Starbucks Corporation: ISS Rating

From Yahoo! FinanceStarbucks Corporation’s ISS Governance QuickScore as of March 1, 2016 is 1.. The pillar scores are Audit: 1; Board: 9; Shareholder Rights: 1; 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.

Starbucks Corporation: Compensation

Starbuck Corporation Summary Compensation Table shows the highest paid named executive officer (NEO) was Howard Schultz chairman and CEO at $20.1. I’m using Yahoo! Finance to determine market cap ($87B) and Wikipedia’s rule of thumb regarding classification. Starbucks Corporation is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.1 million in 2014, so pay is far above that.  Starbucks Corporation shares outperformed the NASDAQ over the most recent one, two, five, and ten year time periods, often substantially.GMIAnalyst

The MSCI GMIAnalyst report I reviewed gave Starbucks Corporation an overall grade of ‘D.’ According to the report:

  • Unvested equity awards partially or fully accelerate upon the CEO’s termination allowing 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, essential for investors to assess the rigor of incentive programs.
  • The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.

I don’t mind paying a bit more for exceptional performance but $20.1M is too much, especially given the above issues. I voted against the pay package, bonus plan and members of the compensation committee: Myron E. Ullman, III (Chair), Olden Lee, James G. Shennan, Jr., Clara Shih, and Javier G. Teruel… although I couldn’t vote against Olden Lee, who is retiring.

Starbucks Corporation: 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.  

Starbucks Corporation: Board Proposals

As stated above, I voted against the pay package.

Starbucks Corporation: Shareholder Proposals

#5 is John Harrington’s proposal and includes the same robust provisions John Chevedden, Kenneth Steiner and I have been submitting. What we are seeking is real proxy access of the type worked out over a decade of negotiations with various parties at the SEC’s… their vacated Rule 14a-11.  Our proposal language meets most of the concerns addressed by CII’s policy paper Proxy Access: Best Practices.CII - Proxy Access: Best Practices

Starbucks has not even bothered to adopt proxy access lite.

I voted against #6, a proposal sponsored by the right-wing National Center for Public Policy Research

Proxy InsightStarbucks Corporation: CorpGov Recommendations Below – Votes Against Board Position in Bold

I also checked Proxy Insight. They report Canada Pension Plan Investment Board (CPPIB) voted with management on all items except #5, voting instead in favor of proxy access, as did TRS (Teachers Retirement System of Texas). The Unitarian Universalist Common Endowment Fund voted with management except they voted against Hobson, Teruel and in favor of proxy access, as well as allowing employees to participate in political process without retribution. CalSTRS vote for all items except #6

# PROPOSAL TEXT CorpGov CALVERT  CPPIB/TRS  CBIS DOMINI TRILLIUM
1a Elect Director Howard Schultz For For For For Against Against
1b Elect Director William W. Bradley For For For For For Against
1c Elect Director Mary N. Dillon For For For For Against Against
1d Elect Director Robert M. Gates For For For For For Against
1e Elect Director Mellody Hobson For For For For For Against
1f Elect Director Kevin R. Johnson For For For For For Against
1g Elect Director Joshua Cooper Ramo For For For For For Against
1h Elect Director James G. Shennan, Jr. Against For For For For Against
1i Elect Director Clara Shih Against For For For For Against
1j Elect Director Javier G. Teruel Against For For For For Against
1k Elect Director Myron E. Ullman, III Against For For For For Against
1l Elect Director Craig E. Weatherup For For For For For Against
2 Advisory Vote to Ratify Named Executive Officers’ Compensation Against Against For For Against Against
3 Amend Executive Incentive Bonus Plan Against For For For Against For
4 Ratify Deloitte & Touche LLP as Auditors For For For Against For For
5 Proxy Access

Included in FocusLists Included in 1 FocusList: Proxy Access
For  For For For For For
6 Amend Policies to Allow Employees to Participate in Political Process with No Retribution Against For Against For For Against

SharkRepellent.net

Starbucks Corporation: Issues for Future Proposals

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • Unanimous written consent (default Washington state statute).
  • Supermajority vote requirement (66.67%) to approve mergers (default Washington state statute).
  • No proxy access.

Starbucks Corporation: Mark Your Calendar

Pursuant to SEC Rule 14a-8, shareholder proposals intended for inclusion in our 2017 proxy statement and acted upon at our 2017 Annual Meeting of Shareholders (the “2017 Annual Meeting”) must be received by us at our executive offices at 2401 Utah Avenue South, Mail Stop S-LA1, Seattle, Washington 98134, Attention: Corporate Secretary, on or prior to September 27, 2016.

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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