GE – General Electric: Proxy Score 58

GEGE, General Electric Company (NYSE:$GE) is a diversified infrastructure and financial services company with products and services ranging from aircraft engines, power generation, oil and gas production equipment, and household appliances to medical imaging, business and consumer financing and industrial products. It is one of the stocks in my portfolio. Their annual meeting is coming up on April 27, 2016.

ProxyDemocracy.org had collected the votes of zero funds when I checked. Vote AGAINST pay plan, compensation committee, proposals on Performance-Based Equity Awards & Country Selection. Vote FOR report on lobbying, independent chair, and Holy Land Principles – voting with the Board’s recommendations 58% 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.

GE: ISS Rating

From Yahoo! FinanceGeneral Electric Company’s ISS Governance QuickScore as of Apr 1, 2016 is 2. The pillar scores are Audit: 2; Board: 7; Shareholder Rights: 1; Compensation: 4. 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 Compensation.

GE: Compensation

GE’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Jeff Immelt at $23.4M. I’m using Yahoo! Finance to determine market cap ($288B) and Wikipedia’s rule of thumb regarding classification. GE 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, so pay is well above that amount. GE shares outperformed the S&P 500 over the most recent one and two year time periods and underperformed or was even for the most recent five year and ten year periods. GMIAnalyst

The MSCI GMIAnalyst report I reviewed gave GE an overall grade of ‘C.’ 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.

Egan-Jones Proxy Services, which takes various measures to arrive at a proprietary rating compensation score, notes one minor issue: “the CEO’s salary at $3,800,000 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.” However, Egan-Jones concludes:

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.

Because of the issues noted above, including pay far above median, I voted against the pay plan and compensation committee: John J. Brennan (Chairman), James I. Cash, Jr., Marijn E. Dekkers, Andrea Jung, Robert W. Lane, James E. Rohr, and Douglas A. Warner III, although Cash and Warner aren’t running for reelection.

GE: 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.

GE: Board Proposals

Egan-JonesAs stated above, I voted against members of the compensation committee.

As I have mentioned previously on many occasions, I like directors representing me to have skin in the game. If they own stock, they are more likely to look out for my interests as a shareholder. See evidence at Bhagat, Sanjai and Carey, Dennis C. and Elson, Charles M., Director Ownership, Corporate Performance, and Management Turnover. All directors at GE own shares in our company.

GE: Shareholder Proposals

#C1 Report on Lobbying Payments and Policy. This proposal from the City of Philadelphia Public Employees Retirement System appears reasonable to me, seeking additional transparency in this important area. Vote For.

#C2 Require Independent Board Chairman. I like this proposal from Kenneth Steiner. I’m happy to see Egan Jones agrees on this one: “We believe that there is an inherent potential conflict, in having an Inside director serve as the Chairman of the board. Consequently, we prefer that companies separate the roles of the Chairman and CEO and that the Chairman be independent to further ensure board independence and accountability.  We recommend a vote “FOR” this Proposal.”

#C3  Adopt Holy Land Principles. I voted in favor of having GE adopt Holy Land Principles. GE claims their operations in Palestine-Israel. essentially comply with these principles of nondiscrimination. If so, why not take a more public stand? Vote For.

#C4 Restore or Provide for Cumulative Voting. Generally, I support cumulative voting, since it gives shareholders a better chance of at least getting some minimal representation on the board. Cumulative voting cannot result in a takeover, only a small degree of influence. Vote For.

#C5 Performance-Based and/or Time-Based Equity Awards. Although I like the intent of this proposal, I’m not sure it would accomplish it stated goal any better than allowing the board continued flexibility. Vote Against.

#C7 Report on Guidelines for Country Selection. This proposal is from the National Center for Public Policy Research. I don’t often vote against a proposal based on who proposed it but for this right-wing organization, I make an exception. I don’t share their values.  Vote Against

Proxy Insight

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

In addition to the votes reported on ProxyDemocracy.orgProxy Insight reported on Colorado PERA and the Canada Pension Plan Investment Board (CPPIB). CPPIB voted with management on all issues except for shareholder proposals C1 & C2 (lobbying, independent chair). Colorado PERA voted with management on all issues except for shareholder proposal C1 (lobbying).  Australia’s Local Government Super voted with management all issues except shareholder proposals C1, C2, and C3 (lobbying, independent chair, holy land principles).

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

NUM.PROPOSAL TEXTCorpgov
A1Elect Director Sebastien M. BazinFor
A2Elect Director W. Geoffrey BeattieFor
A3Elect Director John J. BrennanAgainst
A4Elect Director Francisco D’ SouzaFor
A5Elect Director Marijn E. DekkersAgainst
A6Elect Director Peter B. HenryFor
A7Elect Director Susan J. HockfieldFor
A8Elect Director Jeffrey R. ImmeltFor
A9Elect Director Andrea JungAgainst
A10Elect Director Robert W. LaneAgainst
A11Elect Director Rochelle B. LazarusFor
A12Elect Director Lowell C. McAdamFor
A13Elect Director James J. MulvaFor
A14Elect Director James E. RohrAgainst
A15Elect Director Mary L. SchapiroFor
A16Elect Director James S. TischFor
B1Advisory Vote to Ratify Named Executive Officers’ CompensationAgainst
B2Ratify KPMG LLP as AuditorsFor
C1Report on Lobbying Payments and PolicyFor
C2Require Independent Board ChairmanFor
C3Adopt Holy Land PrinciplesFor
C4Restore or Provide for Cumulative VotingFor
C5Performance-Based and/or Time-Based Equity AwardsAgainst
C6Report on Guidelines for Country SelectionAgainst

GE: Issues for Future Proposals

SharkRepellent.net

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • Unanimous written consent (default New York state statute).
  • Supermajority vote requirement (66.67%) to approve mergers (default New York state statute).
  •  Proxy access provision whereby a shareholder holding at least 3% of the outstanding stock for at least 3 years may nominate one director. The number of shareholders and other persons whose ownership of shares is aggregated for such purpose shall not exceed twenty. Nominators whose candidates receive less than 25% of the vote are prohibited from nominating again for the next two annual meetings. The limitation of groups to 20 members makes KO’s proxy access provisions unworkable. These lmitations make GE’s proxy access close to a meaningless gesture. Amendments are needed.

GE: Mark Your Calendar

SEC rules permit shareowners to submit proposals for inclusion in our proxy statement by satisfying the requirements specified in SEC Rule 14a-8. No later than close of business on November 14, 2016. By mail: Alex Dimitrief, Secretary, GE, at the applicable address listed on the inside front cover of this proxy statement. By email: [email protected].

Current Executive Offices
(through August 2016)
3135 Easton Turnpike
Fairfield, CT 06828

New Executive Offices
(effective September 2016)
33-41 Farnsworth Street
Boston, MA 02210

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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