NCR Corporation (NYSE:NCR) is a global technology company that provides products and services that enable businesses to connect, interact and transact with their customers. It is one of the stocks in my portfolio. Their virtual-only annual meeting is coming up on April 20, 2016. ProxyDemocracy.org had collected the votes of one fund when I checked. I voted AGAINST the pay plan and compensation committee. I voted FOR proxy access, declassifying the board, the employee stock plan and the auditor – voting with the Board’s recommendations 33% 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.
NCR Corporation: ISS Rating
From Yahoo! Finance: NCR Corporation’s ISS Governance QuickScore as of Apr 1, 2016 is 6. The pillar scores are Audit: 10; Board: 2; Shareholder Rights: 7; Compensation: 5. 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: Audit and Shareholder Rights.
NCR Corporation: Compensation
NCR Corporation’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CO/Chair William Nuti at $12M. I’m using Yahoo! Finance to determine market cap ($4B) and Wikipedia’s rule of thumb regarding classification. NCR Corporation is a mid-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $4.9 million in 2014, so pay is well above that amount. NCR Corporation shares underperformed the S&P 500 over the most recent two and ten year time periods and slightly outperformed or was neutral for the most recent one and five year periods. 
The MSCI GMIAnalyst report I reviewed gave NCR Corporation 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 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 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 NCR Corporation‘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 NCR Corporation. 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 up for election: Linda Fayne Gevinson, Chair, and Edward “Pete” Boykin.
NCR Corporation: 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.
NCR Corporation: Board Proposals
As stated above, I voted against members of the compensation committee. I was pleased to see 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 voted in favor of amending the employee stock purchase plan. I am very much in favor of substantive employee ownership at NCR Corporation and incentivizing all employees. Egan-Jones Proxy Services‘ analysis includes the following conclusion:
An Employee Stock Purchase Plan or (ESPP) can be an important tool increasing ownership among company employees. In the US the tax advantages of a qualified plan are compelling, but qualifying for these tax benefits requires shareholder approval of the plan as well as several other structural elements, such as a minimum of 85% of fair market value as a minimum stock price and holding of the stock for a defined period of time. Egan-Jones supports the establishment of such qualified ESPPs unless there is a compelling example of prior abuse or significant reason to expect such abuse in the future.
We find no evidence of prior or expected future abuse of this ESPP and note that it appears to meet the requirements of a qualified plan. Thus we believe this ESPP to be in the best interests of shareholders, we recommend a vote “FOR” this Proposal.
Calvert writes: “A vote FOR this proposal is warranted given that:- The purchase price is reasonable; and- The shares reserved is relatively conservative.”
I also voted in favor of declassifying the board for what feels like the umpteenth time. At the 2014 and 2015 Annual Meetings, the directors’ proposals that sought stockholder approval to eliminate the classification of the Board were approved by 78.43% and 77.01% respectively but the bylaws require 80%. If my recollection is correct, all these votes stemmed from a proposal on the topic from my wife in 20013.
NCR Corporation: Shareholder Proposals
Of course, I voted in favor of my wife’s proxy access proposal.
What we are seeking is real proxy access of the type worked out over a decade of negotiations with various parties at the SEC’s… their vacated Rule 14a-11. Our proposal language meets most of the concerns addressed by CII’s policy paper Proxy Access: Best Practices.
NCR has not even bothered to adopt proxy access lite. According to the Board’s opposition statement:
We have a demonstrated willingness to listen and respond to the concerns of our stockholders. And we have strong corporate governance practices that provide meaningful rights to our stockholders and ensure director accountability. This proposal threatens to destabilize that dynamic and lead to fragmentation, and does not take into account the effective voice our stockholders already have.
NCR has a classified board, outrageous supermajority requirements and allow special meetings only when requested by more than half of common stockholders. Those aren’t strong corporate governance practices. Please vote in For proxy access at the NCR Corporation.
NCR Corporation: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on CalSTRS, which voted the same as me, Colorado PERS and Texas Teachers (I show where their voting differed from Calvert).
| NUM. | PROPOSAL TEXT | CorpGov & CALSTRS | CALVERT /CoPERA/TRST |
|---|---|---|---|
| 1.1 | Elect Director Edward ‘Pete’ Boykin | Withhold | For / Withhold / For |
| 1.2 | Elect Director Linda Fayne Levinson | Withhold | Withhold / Withhold / For |
| 2 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | Against / Against / For |
| 3 | Amend Qualified Employee Stock Purchase Plan | For | For / Against / For |
| 4 | Ratify PricewaterhouseCoopers LLP as Auditors | For | For |
| 5 | Declassify the Board of Directors | For | For |
| 6 | Adopt Proxy Access Right Included in 1 FocusList: Proxy Access | For | For |
NCR Corporation: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Classified board with staggered terms.
- Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
- Supermajority vote requirement (66.67%) to approve mergers (default Maryland state statute).
- Supermajority vote requirement (80%) to amend certain charter and certain bylaw provisions.
- No proxy access provisions.
NCR Corporation: Mark Your Calendar
Stockholders interested in presenting a proposal pursuant to SEC Rule 14a-8 for consideration at NCR’s 2017 Annual Meeting of Stockholders must follow the procedures found in SEC Rule 14a-8 and the Company’s bylaws. To be eligible for possible inclusion in the Company’s 2017 proxy materials, all qualified proposals must be received by NCR’s Corporate Secretary no earlier than October 11, 2016, nor later than 5:00 p.m. Eastern Time November 10, 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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