Boeing Co (NYSE:BA, $BA) operates through five segments: Commercial Airplanes, Boeing Military Aircraft (BMA), Network & Space Systems (N&SS), Global Services & Support (GS&S) and Boeing Capital (BCC). It is one of the stocks in my portfolio. Their annual meeting is coming up on May 2, 2016. ProxyDemocracy.org had collected the votes of 1 fund when I checked. Vote AGAINST pay, compensation committee; FOR proposals on lobbying, special meeting, independent chair; ABSTAIN on Isreal. I voted with the Board’s recommendations 53% 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.
Boeing Co: ISS Rating
From Yahoo! Finance: The Boeing Company’s ISS Governance QuickScore as of Apr 1, 2016 is 5. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 3; 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: Compensation.
Boeing Co: Compensation
Boeing Co’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Former CEO/Chair W. James McNerney, Jr. at $19.9M. I’m using Yahoo! Finance to determine market cap ($86.8B) and Wikipedia’s rule of thumb regarding classification. Boeing Co 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 higher than that amount. Boeing Co’s shares underperformed the S&P 500 over the most recent one, two, and ten year time periods, outperforming only over the last five year time period.
The MSCI GMIAnalyst report I reviewed gave Boeing Co an overall grade of ‘D.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 89% of companies in the home market. 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, essential for investors to assess the rigor of incentive programs.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures American Express Company’s wealth creation in comparison to other widely held issuers. “Superior” is the rating given. On the actual compensation advisory vote, Egan-Jones concludes:
Our qualitative review of this Company’s compensation has identified one minor issue: the CEO’s salary at $1,354,269 exceeds the $1 million dollar deducibility 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…
We believe 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. Therefore, we recommend a vote “FOR” this Proposal.
Given the issues above, including pay over median and underperformance, I voted Against the pay package and the compensation committee: Arthur D. Collins, Jr., Chair, David L. Calhoun, Kenneth M. Duberstein, Ronald A. Williams, Mike S. Zafirovski.
Boeing Co: 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.
Boeing Co: Board Proposals
Egan-Jones recommended in favor of all directors. As noted above, I voted against all members of the compensation committee.
Boeing Co: Shareholder Proposals
Egan-Jones recommends for the shareholder proposal to transition to an independent director but recommended against the rest.
Item #4 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.
#5. Shareholders may call special meeting. The is a good governance measure designed to reduce entrenchment. Allowing special meetings is associated with higher share values. See classic study by Gompers, Paul A. and Ishii, Joy L. and Metrick, Andrew, Corporate Governance and Equity Prices. Vote For.
#6. Require Independent Board Chairman. A 2012 report by GMIRatings, The Costs of a Combined Chair/CEO, found companies with an independent chair provide investors with five-year shareholder returns nearly 28 percent higher than those headed by a party of one. Split roles bring more accountability and oversight to the CEO’s job and frees the board to truly act as the CEO’s boss. Vote For.
#7. Report on Weapon Sales to Israel. I’m going to sit this one out, since I’m not sure this is one of the best ways to deal with the issues.
Boeing Co: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on Teacher Retirement System of Texas (TRS) and Canada Pension Plan Investment Board (CPPIB). CPPIB voted FOR all items except #7 on Israel, where they voted AGAINST. TRS voted FOR all items except #6 independent chair and #7 Israel, where they voted AGAINST.
| # | PROPOSAL TEXT | CorpGov | FLORIDA SBA |
|---|---|---|---|
| 1a | Elect Director David L. Calhoun | Against | For |
| 1b | Elect Director Arthur D. Collins, Jr. | Against | For |
| 1c | Elect Director Kenneth M. Duberstein | Against | For |
| 1d | Elect Director Edmund P. Giambastiani, Jr. | For | For |
| 1e | Elect Director Lynn J. Good | For | For |
| 1f | Elect Director Lawrence W. Kellner | For | Against |
| 1g | Elect Director Edward M. Liddy | For | For |
| 1h | Elect Director Dennis A. Muilenburg | For | For |
| 1i | Elect Director Susan C. Schwab | For | Against |
| 1j | Elect Director Randall L. Stephenson | For | Against |
| 1k | Elect Director Ronald A. Williams | Against | Against |
| 1l | Elect Director Mike S. Zafirovski | Against | For |
| 2 | Ratify Named Executive Officers’ Compensation | Against | For |
| 3 | Ratify Deloitte & Touche LLP as Auditors | For | For |
| 4 | Report on Lobbying Payments and Policy | For | Against |
| 5 | Shareholders may call special meeting | For | For |
| 6 | Require Independent Board Chairman | For | Against |
| 7 | Report on Weapon Sales to Israel | Abstain | Against |
Boeing Co: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- 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.
- Proxy access ‘lite’ provisions whereby a shareholder, or a group of up to 20 shareholders, holding at least 3% of the outstanding common stock for at least three years may nominate up to two directors or 20% of the board, whichever is greater. Stockholder nominees who receive less than 25% of the vote will be ineligible to be a Stockholder Nominee for the next two annual meetings of stockholders.
Boeing Co: Mark Your Calendar
If you wish to submit a proposal for inclusion in our 2017 proxy statement, you must follow the procedures set forth in Rule 14a-8 of the Securities Exchange Act of 1934. To be eligible for inclusion, we must receive your proposal at the address below no later than Friday, November 18, 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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