Kimberly Clark Corp (NYSE:KMB, $KMB) is engaged in the manufacturing and marketing of products made from natural or synthetic fibers. 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 four funds when I checked. Vote AGAINST pay, compensation committee and Mr. Bergstrom, who should not be on the Audit Committee. All others vote FOR. I voted with the Board’s recommendations 60% 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.
Kimberly Clark Corp: ISS Rating
From Yahoo! Finance: Kimberly-Clark Corp’s ISS Governance QuickScore as of Apr 1, 2016 is 2. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 5; 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, Shareholder Rights.
Kimberly Clark Corp: Compensation
Kimberly-Clark Corp’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Former CEO/Chair Thomas J. Falk at $12.2M. I’m using Yahoo! Finance to determine market cap ($46B) and Wikipedia’s rule of thumb regarding classification. Kimberly-Clark Corp 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. Kimberly-Clark Corp‘s shares outperformed the S&P 500 over the most recent one, two, five and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave Boeing Co an overall grade of ‘C.’ 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.
- The CEO’s annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
- 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. Disparity in pay raises concerns regarding the company’s succession planning.
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. “Neutral” 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 $1,300,000 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. 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, I voted Against the pay package and the compensation committee: Abelardo E. Bru, Chairman, Fabian T. Garcia, Mae C. Jemison, M.D., Marc J. Shapiro.
Kimberly Clark Corp: 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.
Kimberly Clark Corp: Board Proposals
Egan-Jones recommended in favor of all directors except John F. Bergstrom because he is an affiliated outside director and a current member of the Audit Committee of the Board. “We believe that key Board committees namely Audit, Compensation and Nominating committees should be comprised solely of Independent outside directors for sound corporate governance practice.”
As noted above, I voted against all members of the compensation committee. I also concurred with EJ’s recommendation regarding Mr. Bergstrom and voted against him as well.
With regard to the stock plan, shareholders are being asked to reapprove the performance goals for the Company’s 2011 Equity Participation Plan (the “2011 Plan”). No amendments are requested. EJ recommends a vote For. I concur.
With regard to director’s stock plan, shareholders are being asked to amend the plan by setting limits. EJ recommends voting For. I think the limits are too high but they are better than no limits, so I voted For.
Kimberly Clark Corp: Shareholder Proposals
None.
Kimberly Clark Corp: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on Canada Pension Plan Investment Board (CPPIB) and Texas Teachers which both voted with the board on all issues.
| # | PROPOSAL TEXT | CorpG0v | CALVERT | DOMINI | CBIS | TRILLIUM |
|---|---|---|---|---|---|---|
| 1.1 | Elect Director John F. Bergstrom | Against | For | For | For | Against |
| 1.2 | Elect Director Abelardo E. Bru | Against | For | For | For | Against |
| 1.3 | Elect Director Robert W. Decherd | For | For | For | For | Against |
| 1.4 | Elect Director Thomas J. Falk | For | For | Against | For | Against |
| 1.5 | Elect Director Fabian T. Garcia | Against | For | For | For | Against |
| 1.6 | Elect Director Mae C. Jemison | Against | For | For | For | Against |
| 1.7 | Elect Director James M. Jenness | For | For | For | For | Against |
| 1.8 | Elect Director Nancy J. Karch | For | For | For | For | Against |
| 1.9 | Elect Director Ian C. Read | For | For | For | For | Against |
| 1.10 | Elect Director Marc J. Shapiro | Against | For | For | For | Against |
| 1.11 | Elect Director Michael D. White | For | For | For | For | Against |
| 2 | Ratify Deloitte & Touche LLP as Auditors | For | For | For | Against | For |
| 3 | Ratify Named Executive Officers’ Compensation | Against | For | Against | For | Against |
| 4 | Amend Omnibus Stock Plan | For | For | Against | For | Against |
| 5 | Amend Non-Employee Director Omnibus Stock Plan | For | For | For | For | Against |
Kimberly Clark Corp: 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 20% of the board.
Kimberly Clark Corp: Mark Your Calendar
Stockholders who, in accordance with SEC Rule 14a-8, wish to present proposals for inclusion in our proxy statement and form of proxy for the 2017 Annual Meeting of Stockholders must submit their proposals to the Corporate Secretary, Kimberly-Clark Corporation, P.O. Box 619100, Dallas, Texas 75261-9100, so that they are received at this address no later than November 11, 2016. Upon receipt of a proposal, we will determine whether or not to include the proposal in the proxy statement and form of proxy in accordance with applicable law. We suggest that proposals be forwarded by certified mail, return receipt requested.
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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