Facebook Inc (NASD:FB), one of the companies in my portfolio, builds products that enable people to connect and share through mobile devices and personal computers. Their annual meeting is coming up on June 20, 2016.
ProxyDemocracy.org had collected the votes of three fund families when I checked. Vote AGAINST pay, pay committee, board; FOR all shareholder proposals. I voted with the Board’s recommendations 13% of the time. View Proxy Statement via iiWisdom.
Facebook Inc: ISS Rating
From Yahoo! Finance: Facebook, Inc’s ISS Governance QuickScore as of Jun 1, 2016 is 10. The pillar scores are Audit: 2; Board: 9; 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: all but Audit.
Facebook Inc: Compensation
Facebook Inc’s Summary Compensation Table (p. 28) shows the highest paid named executive officer (NEO) was COO Sheryl K. Sandberg $15.5M. I’m using Yahoo! Finance to determine market cap ($334B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Facebook Inc 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 over that amount. Facebook Inc’s shares outperformed the NASDAQ over the most recent one, two and five year time periods.
The MSCI GMIAnalyst report I reviewed gave Cognizant Technology an overall grade of ‘D.’ 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.
- The company’s failure to establish and disclose specific standards regarding minimum equity retention standards for its CEO and directors may weaken the ability of equity awards to align executives’ interests with long-term value creation.
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. “Superior” is the rating given. On the actual compensation advisory vote, Egan-Jones concludes:
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.
Taking the above factors into account, especially level of pay and the increasing wealth divide, I voted “AGAINST” the pay package and “WITHHOLD” for compensation committee members Reed Hastings (Chair), Marc L. Andreessen, and Peter A. Thiel.
Facebook Inc: 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.
Facebook Inc: Board Proposals
Egan-Jones recommended in favor of all directors. As indicated above, I voted “AGAINST” the pay package and “WITHHOLD” for compensation committee members. I voted against the other directors for perpetuating a capital structure that entrenches the controlling shareholder without affording Class A shareholders a meaningful vote on the new class of stock.
Egan-Jones recommended in favor of all board proposals, except 7B, increasing the number of Class A shares. I voted ‘AGAINST’ most board proposals, since they would simply entrench and enrich an authoritarian governance structure. I voted ‘FOR’ 7C, since it would provide for equal treatment of share classes in certain circumstances. I voted ‘FOR’ 7D, since it would provide for the elimination of the company’s controlled status under certain circumstances.
4 – Ratification of 2013 Grants to Non-Employee Directors.
5 – Ratification of 2014 And 2015 Grants to Non-Employee Directors.
6 – Approval of the Annual Compensation Program for Non-Employee Directors
7A – Approval of the Adoption of Amendments to the Current Certificate to Establish the Class C Capital Stock and to Make Certain Clarifying Changes
7B – Approval of the Adoption of Amendments to the Current Certificate to Increase the Number of Authorized Shares of Class A Common Stock From 5,000,000,000 to 20,000,000,000
7C – Approval of the Adoption of Amendments to the Current Certificate to Provide for the Equal Treatment of Shares of Class A common stock, Class B common stock, and Class C capital stock
7D – Approval of the Adoption of Amendments to the Current Certificate
8 – Amendment and Restatement of 2012 Equity Incentive Plan
Facebook Inc: Shareholder Proposals
Egan-Jones recommended against all the shareholder proposals except #9. “We prefer that companies do not utilize dual class capital structures to provide equal voting rights to all shareholders. We recommend a vote “FOR” this Proposal.”
I voted ‘FOR’ all the proposals, which all appear to be reasonable requests. #9 is especially important in eliminating the different voting classes.
9 – Shareholder Proposal Regarding Change in Shareholder Voting. My wife and I co-filed this proposal with NorthStar Asset Management.
10 – Shareholder Proposal Regarding an Annual Sustainability Report
11 – Shareholder Proposal Regarding a Lobbying Report
12 – Shareholder Proposal Regarding an International Public Policy Committee
13 – Shareholder Proposal Regarding a Gender Pay Equity Report
Facebook Inc: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Classified board with staggered terms.
- Plurality vote standard to elect directors with no resignation policy.
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to amend certain charter and all bylaw provisions.
- No proxy access.
Facebook Inc: Mark Your Calendar
You may present proposals for action at a future meeting or submit nominations for election of directors only if you comply with the requirements of the proxy rules established by the SEC and our amended and restated bylaws, as applicable. In order for a stockholder proposal or nomination for director to be considered for inclusion in our proxy statement and form of proxy relating to our annual meeting of stockholders to be held in 2017, the proposal or nomination must be received by us at our principal executive offices no later than February 3, 2017.
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.