NextEra Energy Inc (NYSE:NEE, $NEE) is an electric power company in North America with electric generating facilities located in over 30 states in the United States and approximately five provinces in Canada. Their annual meeting is coming up on May 19, 2016. ProxyDemocracy.org had collected the votes of one fund family when I checked. Vote AGAINST pay, compensation committee, stock plan; FOR all shareholder proposals, especially proxy access. I voted with the Board’s recommendations 50% 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.
NextEra: ISS Rating
From Yahoo! Finance: NextEra Energy, Inc.’s ISS Governance QuickScore as of May 1, 2016 is 1. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 2; 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.
NextEra: Compensation
NextEra’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair James Robo at $15.3M. I’m using Yahoo! Finance to determine market cap ($55.7B) and Wikipedia’s rule of thumb regarding classification. NextEra 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 was considerably higher than that amount. NextEra’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 NextEra 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures NextEra’s wealth creation in comparison to other widely held issuers. “Good” is the overall rating given but “Needs Attention” for compensation. 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 $1,250,000 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 162
m covered NEOs who exceed this limit in the future.
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.
m covered NEOs who exceed this limit in the future.Given the issues above, especially pay substantially over median, I voted AGAINST the pay package, and the compensation committee: Kenneth B. Dunn, Kirk S. Hachigian, Amy B. Lane, Rudy E. Schupp, and Hansel E. Tookes, II. EJ recommended the same.
NextEra: 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.
NextEra: Board Proposals
As mentioned above, I voted against the pay package and the compensation committee.
From Egan-Jones:
We note however, after taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined above, we believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future. Therefore, we recommend a vote “AGAINST” this Proposal.
I joined with them in recommending AGAINST the Stock Plan.
NextEra: Shareholder Proposals
#5 Report on Political Contributions. This proposal by the Comptroller of the State of New York simply seeks semi-annual disclosure of political contributions. The proposal quotes from Justice Kennedy’s opinion in the Supreme Court Citizens United decision: “[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” The Court appears to have believed we already get the information. We don’t. Vote ‘FOR’ so that we can make informed decisions.
#6 Adopt Proxy Access Right. The proposal is mine – submitted by my wife, so you can be sure I voted FOR. Key provisions include allowing an unrestricted group of shareholder owning 3% of common stock over at least 3 years to place nominees totaling up to one quarter of the directors then serving or two, whichever is greater. Proxy access is the most important shareholder right that has to be won through a proxy vote. I’ve been working on this issue since before filing a petition with the SEC in the summer of 2002, which the Council of Institutional Investors said reinvigorated the debate. If you vote only one item on the proxy, let it be ‘FOR’ #6, proxy access.
#7 Report on Risks and Costs of Sea Level Rise. The proposal by Alan Farago and Lisa Versaci requests NextEra to report material risks and costs of sea level rise to company operations, facilities, and markets forward to 2100. Vote ‘FOR.” Let’s start planning ahead.
CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on Calvert, Canada Pension Plan (CPPIB), Calvert and Texas Teachers (TRS). Each voted ‘For’ on all items, except Calvert, which voted against the compensation plan. Egan-Jones Proxy Services For #6 proxy access, but against the other two shareholder proposals.
| # | PROPOSAL TEXT | CorpGov | TRILLIUM |
|---|---|---|---|
| 1a | Elect Director Sherry S. Barrat | For | Against |
| 1b | Elect Director James L. Camaren | For | Against |
| 1c | Elect Director Kenneth B. Dunn | Against | Against |
| 1d | Elect Director Naren K. Gursahaney | For | Against |
| 1e | Elect Director Kirk S. Hachigian | Against | Against |
| 1f | Elect Director Toni Jennings | For | Against |
| 1g | Elect Director Amy B. Lane | Against | Against |
| 1h | Elect Director James L. Robo | For | Against |
| 1i | Elect Director Rudy E. Schupp | Against | Against |
| 1j | Elect Director John L. Skolds | For | Against |
| 1k | Elect Director William H. Swanson | For | Against |
| 1l | Elect Director Hansel E. Tookes, II | Against | |
| 2 | Ratify Deloitte & Touche LLP as Auditors | For | For |
| 3 | Ratify Named Executive Officers’ Compensation | Against | Against |
| 4 | Amend Omnibus Stock Plan | Against | Against |
| 5 | Report on Political Contributions | For | For |
| 6 | Adopt Proxy Access Right Included in 1 FocusList: Proxy Access | For | For |
| 7 | Report on Risks and Costs of Sea Level Rise | For | For |
NextEra: 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 20% of the voting power.
- No proxy access.
NextEra: Mark Your Calendar
Proposals on matters appropriate for shareholder consideration consistent with Rule 14a-8 under the Exchange Act submitted by shareholders for inclusion in the proxy statement and form of proxy for the 2017 annual meeting of shareholders must be received by the Corporate Secretary at the Company’s principal executive offices not later than December 1, 2016. The submission of such proposals by shareholders is subject to regulation by the SEC pursuant to Rule 14a-8.
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.
Comments are closed.