ATT: Proxy Score 50

ATTATT, AT&T Inc. (NYSE:T) provides telecommunications and digital entertainment services through four segments: Business Solutions, Entertainment Group, Consumer Mobility, and International. It is one of the stocks in my portfolio. Their annual meeting is coming up on April 29, 2016. had collected the votes of four funds when I checked. I voted AGAINST the pay plan, compensation committee, and stock plan. Vote FOR independent chair, disclose lobbying and political contributions. I voted with the Board’s recommendations 50% 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.

ATT: ISS Rating

From Yahoo! FinanceAT&T, Inc.’s ISS Governance QuickScore as of Apr 1, 2016 is 3. The pillar scores are Audit: 1; Board: 8; Shareholder Rights: 2; Compensation: 6Brought 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 Compensation.

ATT: Compensation

ATT’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair R. Stephenson at $25M. I’m using Yahoo! Finance to determine market cap ($238B) and Wikipedia’s rule of thumb regarding classification. ATT is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay is well above that amount. ATT’s shares underperformed the S&P 500 over the most recent one year time period, underperforming during the most recent two year, five year and ten year periods. GMIAnalyst

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

  • The company has not disclosed specific, quantifiable performance target objectives for the CEO, essential for investors to assess the rigor of incentive programs.
  • The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
  • The company’s failure to establish and disclose specific standards regarding minimum equity retention standards for its directors may weaken the ability of equity awards to align directors’ interests with long-term value creation.

Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures ATT’s wealth creation in comparison to other widely held issuers. “Needs attention” appears to be as low as they go. That’s the score they assigned to ATT On the actual compensation advisory vote, Egan-Jones concludes:

After taking into account both the quantitative and qualitative measures outlined above, we believe that shareholders cannot support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote “AGAINST” this Proposal…

Our qualitative review of this Company’s compensation has identified one minor issue: the CEO’s salary at  $1,741,667 exceeds the $1 million dollar deductibility limit imposed by section 162m for salaries and non-qualified incentive payments. Failure to abide by IRS 162m rules results in loss of deductibility for the compensation in question and possibly increased and unnecessary tax payments. While this issue is not sufficient to trigger a negative vote alone, it does impact the Company’s overall compensation score, we would recommend the board investigate and consider alternative means of compensation for the CEO and any other 162m covered NEOs who exceed this limit in the future.

Because of the issues noted above, including above median pay, I voted against the pay plan and compensation committee up for election: Scott T. Ford, Joyce M. Roché, and Matthew K. Rose.

ATT: 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.

ATT: Board Proposals

Egan-JonesAs stated above, I voted against members of the compensation committee. Egan-Jones Proxy Services also recommends voting against the compensation committee. From their report:

Egan-Jones believes that the Compensation Committee should be held accountable for such a poor rating and should ensure that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.

I followed the advice of Egan-Jones with regard to #4 the Omnibus Stock Plan and voted Against:

After taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined above, we believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future. Therefore, we recommend a vote “AGAINST” this Proposal.

ATT: Shareholder Proposals

Egan-Jones recommends for the shareholder proposal to transition to an independent director but against the rest.

Item #5, Report on Indirect Political Contributions I generally vote in favor of all such proposals if they are well crafted.  We should encourage transparency and accountability in the company’s use of corporate funds to influence elections to ensure company assets are not used for objectives contrary to the Company’s long-term interests.  Vote For.

Item #6 Report on Lobbying Payments and Policy I generally vote in favor of all such proposals if they are well crafted.  We should encourage transparency and accountability in the company’s use of corporate funds to influence legislation and regulations to ensure company assets are not used for objectives contrary to the Company’s long-term interests.  Vote For.

Item #7 Require Independent Board Chairman, requesting  a transition to split chair and CEO positions. This is simple good governance. I routinely submit almost the same exact proposal.  Don’t be fooled, a ‘lead director’ is in no way equivalent to an independent chair. Vote For.

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

In addition to the votes reported on ProxyDemocracy.orgProxy Insight reported on CalSTRS, Canada Pension Plan Investment Board (CPPIB), and Teacher Retirement System of Texas (TRS). CalSTRS voted AGAINST Stephenson and Taylor, as well as the shareholder proposals on political contributions and lobbying.  CPPIB and TRS voted FOR all items, including the shareholder proposals.

ATT: CorpGov Recommendations Below – Votes Against Board Position in Bold

1.1Elect Director Randall L. StephensonAgainstForAgainstAgainstFor
1.2Elect Director Samuel A. Di Piazza, Jr.ForForForAgainstFor
1.3Elect Director Richard W. FisherForForForAgainstFor
1.4Elect Director Scott T. FordAgainstForForAgainstFor
1.5Elect Director Glenn H. HutchinsForForForAgainstFor
1.6Elect Director William E. KennardForForForAgainstFor
1.7Elect Director Michael B. McCallisterForForForAgainstFor
1.8Elect Director Beth E. MooneyForForForAgainstFor
1.9Elect Director Joyce M. RocheAgainstForForAgainstFor
1.10Elect Director Matthew K. RoseAgainstForForAgainstFor
1.11Elect Director Cynthia B. TaylorForForAgainstAgainstAgainst
1.12Elect Director Laura D’Andrea TysonForForForAgainstAgainst
2Ratify Ernst & Young LLP as AuditorsForForForForFor
3Ratify Named Executive Officers’ CompensationAgainstAgainstAgainstAgainstAgainst
4Approve Omnibus Stock PlanAgainstForAgainstAgainstAgainst
5Report on Indirect Political ContributionsForForForForFor
6Report on Lobbying Payments and PolicyForForForForFor
7Require Independent Board ChairmanForForForForFor

ATT: Issues for Future Proposals

Looking at for provisions unfriendly to shareowners:

  • Action can be taken without a meeting by written consent but shall be signed by stockholders holding not less than 66.67 percent of the outstanding shares of the Company’s stock entitled to vote with respect to the subject matter thereof.
  • Special meetings can only be called by shareholders holding not less than 15% of the voting power.
  • Proxy access provision, but limited to a group of up to 20 stockholders, holding at least 3% of the outstanding common stock for at least three years may include in the company’s proxy materials director nominees constituting up to the greater of two directors or 20% of the board. Amendments needed to bring to vacated Rule 14a-11 standard.

ATT: Mark Your Calendar

Stockholder proposals intended to be included in the proxy materials for the 2017 Annual Meeting must be received by November 11, 2016. Such proposals should be sent in writing by courier or certified mail to the Senior Vice President and Secretary of AT&T at 208 S. Akard Street, Suite 3241, Dallas, Texas 75202. Stockholder proposals that are sent to any other person or location or by any other means may not be received in a timely manner.


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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