Marriott International Inc (NASD:MAR, $MAR) is an operator, franchisor and licensor of hotels and timeshare properties across the world. It also operates markets and develops residential properties and provides services to home/condominium owner associations. It is one of the stocks in my portfolio. Their annual meeting is coming up on May 6, 2016. ProxyDemocracy.org had collected the votes of three funds when I checked. I voted AGAINST the pay plan and compensation committee members, FOR moving to a simple majority voting standard. I voted with the Board’s recommendations 64% of the time. View ProxyStatement.
Marriott: ISS Rating
From Yahoo! Finance: Marriott International, Inc.’s ISS Governance QuickScore as of Apr 1, 2016 is 4. The pillar scores are Audit: 2; Board: 4; Shareholder Rights: 8; 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: Shareholder Rights.
Marriott’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Arne M. Sorenson at $11M. I’m using Yahoo! Finance to determine market cap ($17B) and Wikipedia’s rule of thumb regarding classification. Marriott is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $10.3 million in 2014, so pay is above that amount. Shares underperformed the S&P 500 over the most recent one, two and ten year time periods and outperformed for the most recent ten year period.
The MSCI GMIAnalyst report I reviewed gave Marriott 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures 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 Marriott. 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.
Because of the issues noted above, including above median pay and underperformance, I voted against the pay plan and compensation committee members: Mary K. Bush, Steven S Reinemund and Susan C. Schwab.
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.
Marriott: Board Proposals
As mentioned above, I voted AGAINST the pay plan and compensation committee members, as recommended by Egan-Jones Proxy Services.
Marriott: Shareholder Proposals
Of course, I voted in favor of my wife’s proposal recommending a simple majority voting standard for removal of directors, amending governance documents, etc., rather than the current threshold of 66.7%.
As Egan-Jones notes:
Shareholders are willing to pay a premium for shares of corporations that have excellent corporate governance. Supermajority voting requirements have been found to be one of six entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucian Bebchuk, Alma Cohen and Allen Ferrell of the Harvard Law School. Supermajority requirements are arguably most often used to block initiatives supported by most shareholders but opposed by a status quo management…
We believe that a simple majority vote will strengthen the Company’s corporate governance practice. Contrary to supermajority voting, a simple majority standard will give the shareholders equal and fair representation in the Company by limiting the power of shareholders who own a large stake in the entity, therefore, paving way for a more meaningful voting outcome. As such, we recommend a vote “FOR” this Proposal.
This is a simple, good governance measure. Please vote FOR #4 to eliminate supermajority requirements.
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on Canada Pension Plan Investment Board (CPPIB) and Teacher Retirement System of Texas (TRS), which voted the same as Calvert below.
|1.1||Elect Director J.W. Marriott, Jr.||For||Against||For|
|1.2||Elect Director Mary K. Bush||Against||For||For|
|1.3||Elect Director Deborah Marriott Harrison||For||For||For|
|1.4||Elect Director Frederick A. ‘Fritz’ Henderson||For||Against||For|
|1.5||Elect Director Lawrence W. Kellner||For||For||For|
|1.6||Elect Director Debra L. Lee||For||For||For|
|1.7||Elect Director George Munoz||For||For||For|
|1.8||Elect Director Steven S. Reinemund||Against||For||For|
|1.9||Elect Director W. Mitt Romney||For||For||For|
|1.10||Elect Director Arne M. Sorenson||For||For||For|
|1.11||Elect Director Susan C. Schwab||Against||For||For|
|2||Ratify Ernst & Young LLP as Auditors||For||For||Against|
|3||Ratify Named Executive Officers’ Compensation||Against||Against||For|
|4||Reduce Supermajority Vote Requirement||For||For||For|
Marriott: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority requirements.
- No proxy access provisions.
Marriott: Mark Your Calendar
To be considered for inclusion in our proxy statement for the 2017 annual meeting of stockholders, stockholder proposals must be received at our offices no later than the close of business December 7, 2016. Proposals must comply with Rule 14a-8 under the Securities Exchange Act of 1934, and must be submitted in writing to the Corporate Secretary, Marriott International, Inc., Department 52/862, 10400 Fernwood Road, Bethesda, Maryland 20817.
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.