Alphabet (GOOGL), one of the companies in my portfolio, is a holding company. The Company holds interests in Google Inc. (Google). The Company’s segments include Google and Other Bets. Google segment includes Internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome, Google Play, and hardware products, including Chromecast, Chromebooks and Nexus, which are sold by the Company. Their annual meeting is coming up on June 8, 2016.
ProxyDemocracy.org had collected the votes of three fund families when I checked. Vote AGAINST the Board, Stock Plans, Articles; FOR auditor and all shareholder proposals. I voted with the Board’s recommendations 5% of the time. View Proxy Statement via iiWisdom.
Alphabet: ISS Rating
From Yahoo! Finance: Alphabet Inc.’s ISS Governance QuickScore as of Jun 1, 2016 is 10. The pillar scores are Audit: 2; Board: 10; Shareholder Rights: 10; Compensation: 10. 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, and Compensation.
Alphabet, Inc.’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Sundar Pichia at $100.6M. I’m using Yahoo! Finance to determine market cap ($510B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Alphabet 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 over that amount. Alphabet’s shares outperformed the NASDAQ over the most recent one, two, five and ten year periods.
The MSCI GMIAnalyst report I reviewed gave Alphabet an overall grade of ‘F.’ According to the report:
- The company has not disclosed specific, quantifiable performance target objectives for the CEO, essential for investors to assess the rigor of incentive programs.
Because of our Alphabet overlords and the way our voting rights are structured, shareholders have no say this year on executive compensation.
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.
Alphabet: Board Proposals
Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating. The rate the Board ‘Neutral” and endorsed all directors.
There is a single slate of nominees, the nominees appear qualified and we recommend a vote “FOR” this Proposal.
I voted ‘AGAINST’ the entire board. I don’t like the movement from dual-class to tri-class shares. Additionally, I don’t like the fact that although 76% of shares were voted to move to majority voting for directors, the board has failed to act on the measure.
#3 Amend Omnibus Stock Plan. Egan-Jones writes, “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 voted ‘AGAINST.’
#4 Amend Articles. Egan-Jones believes that “approval of the deletion of the Pass-Through Provision will provide Alphabet with the flexibility to manage its organization under the holding company structure more efficiently and effectively.” They recommend a vote “FOR.” However, I agree with Domini and Calvert, “a vote AGAINST this proposal is warranted given the proposed amendment would significantly diminish shareholder rights.” Vote ‘AGAINST.’
Alphabet: Shareholder Proposals
Egan-Jones recommends AGAINST 6, 7, and 10; FOR 8 and 9.
#5 Approve Recapitalization Plan for all Stock to Have One-vote per Share. This proposal is me, John Chevedden, my wife Myra K. Young and NorthStar Asset Management. Owners provide capital to the firm. We should also have some say in how our company is run. Vote ‘FOR.’
#6 Report on Lobbying Payments and Policy. This proposal is from Walden Asset Management. Justice Kennedy appears to have thought all this information was already reported to shareholders on a routine basis when he wrote the Citizens United decision.
With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.
It is not. Here is our opportunity to get that right at Alphabet. Vote #6 ‘FOR.’
#7 Report on Political Contributions. This proposal from Clean Yield Asset Management is a great counterpart to the proposal on lobbying. Vote ‘FOR.’
# 8 Require a Majority Vote for the Election of Directors. This proposal is from Clean Yield Asset Management. This proposal was from the Firefighters’ Pension System of the City of Kansas City, Missouri, Trust. This is a basic right, necessary so that shareowners can hold directors accountable. Vote ‘FOR.’
#9 Require Independent Board Chairman is a proposal from the Marco Consulting Group Trust. Everyone needs a boss, especially the CEO of a company that has underperformed the S&P 500 so consistently. The opposition argues the board has a ‘Presiding Director.’ Was Frank Sinatra known as the presiding director. Hell no! He was the Chairman of the Board… a title that really means something. Vote #9 ‘FOR.’
#10 Report on Gender Pay Gap is a proposal from Arjuna Capital. ‘Shareholders request Alphabet prepare a report by October 2016, omitting proprietary information and prepared at reasonable cost, on the Company’s policies and goals to reduce the gender pay gap.’ Alphabet lags its peers in addressing gender pay disparity. By not addressing this issue at the same level as its peers, Alphabet is put at a competitive disadvantage in the recruitment of candidates and retention of employees. Vote ‘FOR.’
In addition to votes gathered by ProxyDemocracy.org, Proxy Insight had reported votes of Teacher Retirement System of Texas (TRS), which voted all similar to Calvert, except for two items as noted below.
|1.1||Elect Director Larry Page||Withhold||For|
|1.2||Elect Director Sergey Brin||Withhold||For|
|1.3||Elect Director Eric E. Schmidt||Withhold||Withhold|
|1.4||Elect Director L. John Doerr||Withhold||For|
|1.5||Elect Director Diane B. Greene||Withhold||For|
|1.6||Elect Director John L. Hennessy||Withhold||Withhold|
|1.7||Elect Director Ann Mather||Withhold||For|
|1.8||Elect Director Alan R. Mulally||Withhold||For|
|1.9||Elect Director Paul S. Otellini||Withhold||Withhold|
|1.10||Elect Director K. Ram Shriram||Withhold||Withhold|
|1.11||Elect Director Shirley M. Tilghman||Withhold||For|
|2||Ratify Ernst & Young LLP as Auditors||For||For|
|3||Amend Omnibus Stock Plan||Against||Against|
|5||Approve Recapitalization Plan for all Stock to Have One-vote per Share||For||For|
|6||Report on Lobbying Payments and Policy||For||For|
|7||Report on Political Contributions||For||For|
|8||Require a Majority Vote for the Election of Directors||For||For|
|9||Require Independent Board Chairman||For||For|
|10||Report on Gender Pay Gap||For||For|
Alphabet: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Plurality vote standard to elect directors with no resignation policy.
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- Supermajority vote requirement (66.67%) to amend certain charter provisions.
- The Corporation shall not consummate a Change in Control Transaction (or amend this provision) without first obtaining the affirmative vote, at a duly called annual or special meeting of the stockholders of the Corporation, of the holders of the greater of: (A) a majority of the voting power of the issued and outstanding shares of capital stock of the Corporation then entitled to vote thereon, voting together as a single class, and (B) sixty percent (60%) of the voting power of the shares of capital stock present in person or represented by proxy at the stockholder meeting called to consider the Change in Control Transaction and entitled to vote thereon, voting together as a single class.
Alphabet: Mark Your Calendar
Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the 2017 Annual Meeting of Stockholders by submitting their proposals in writing to Alphabet’s Corporate Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2017 Annual Meeting of Stockholders, the Corporate Secretary of Alphabet must receive the written proposal at our principal executive offices no later than December 30, 2016. If we hold our 2017 Annual Meeting of Stockholders more than 30 days before or after June 8, 2017 (the one-year anniversary date of the 2016 Annual Meeting of Stockholders), we will disclose the new deadline by which stockholders proposals must be received under Item 5 of Part II of our earliest possible Quarterly Report on Form 10-Q or, if impracticable, by any means reasonably determined to inform stockholders. In addition, stockholder proposals must otherwise comply with the requirements of Rule 14a-8 under the Exchange Act and with the SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to: Alphabet Inc., Attn: Corporate Secretary, Mountain View, California 94043. Fax: (650) 618-1806, Email: email@example.com.
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.