FedEx Corporation (NYSE:FDX) provides transportation, e-commerce, and business services in the United States and internationally. Their annual meeting is coming up on September 26, 2016. Last day to vote is the 25th, unless you attend the meeting.
ProxyDemocracy.org had collected the votes of two fund families when I checked. Vote AGAINST pay, compensation committee; FOR all shareholder proposals. I voted with the Board’s recommendations 44% of the time. View Proxy Statement via iiWisdom. I’m on vacation, so sorry for the late and somewhat abbreviated post.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
FDX: ISS Rating
From ISS: FDX’s ISS Governance QuickScore as of September 23, 2016 is 6. The pillar scores are Audit: 2; Board Structure: 9; Shareholder Rights: 4; 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: Board Structure.
FDX: Compensation
FDX’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO and Chairman Frederick W. Smith at $16.8M. I’m using Yahoo! Finance to determine market cap ($46B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. FDX 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 well over that amount. FDX’s shares outperformed the NASDAQ over the most recent one, and five year time periods; even over two and underperformed over most recent ten year period.
The MSCI GMIAnalyst report I reviewed gave FDX an overall grade of ‘C.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination. 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 wealth creation in comparison to other widely held issuers. “Needs Attention” is the rating given. On the actual compensation advisory vote, Egan-Jones concludes:
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.
Taking into account the issues above, I voted ‘AGAINST’ the pay package. I also followed my normal practice and EJ’s advice, voting against the compensation committee”
We recommend that clients “WITHHOLD” votes from the members of the Compensation Committee, namely Independent outside directors Marvin R. Ellison, Shirley Ann Jackson, Susan C. Schwab and Paul S. Walsh. 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.
FDX: 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.
FDX: Board Proposals
As mentioned above, I voted against the pay package and members of the compensation committee.
FDX: Shareholder Proposals
I’m on vacation, so am keeping this short. I’ve seen most of these shareholder proposals elsewhere at other companies and believe they further shareholder value and values. I am likely to submit a proposal next year to amend their proxy access bylaws.
FDX: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to votes gathered by ProxyDemocracy.org, Proxy Insight had reported votes of CalSTRS, Canada Pension Plan Investment Board (CPPIB), Colorado PERA (COPERA), and Teacher Retirement System of Texas (TRS). CalSTRS voted similar to me (CorpGov), except they voted against the last two shareholder proposals. The other funds voted for all items except the last two shareholder proposals.
| # | PROPOSAL TEXT | CorpGov | CBIS | TRILLIUM |
|---|---|---|---|---|
| 1.1 | Elect Director James L. Barksdale | For | For | Against |
| 1.2 | Elect Director John A. Edwardson | For | For | Against |
| 1.3 | Elect Director Marvin R. Ellison | Against | For | Against |
| 1.4 | Elect Director John C. (“Chris”) Inglis | For | For | Against |
| 1.5 | Elect Director Kimberly A. Jabal | For | For | Against |
| 1.6 | Elect Director Shirley Ann Jackson | Against | For | Against |
| 1.7 | Elect Director R. Brad Martin | For | For | Against |
| 1.8 | Elect Director Joshua Cooper Ramo | For | For | Against |
| 1.9 | Elect Director Susan C. Schwab | Against | For | Against |
| 1.10 | Elect Director Frederick W. Smith | For | For | Against |
| 1.11 | Elect Director David P. Steiner | For | For | Against |
| 1.12 | Elect Director Paul S. Walsh | Against | For | Against |
| 2 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | For | Against |
| 3 | Ratify Ernst & Young LLP as Auditors | For | Against | For |
| 4 | Report on Lobbying Payments and Policy | For | For | For |
| 5 | Adopt Simple Majority Vote | For | Against | For |
| 6 | Adopt Holy Land Principles | For | For | Abstain |
| 7 | Report Application of Company Non-Discrimination Policies in States With Pro-Discrimination Laws | For | For | For |
FDX: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Shareholders cannot call special meetings.
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- Proxy access lite provisions whereby a shareholder or group of no more than 20 stockholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed to two individuals or 20% of the board.
I am likely to submit a proposal next year to amend their proxy access bylaws.
FDX: Mark Your Calendar
Stockholder proposals (other than director nominations) intended to be presented at FedEx’s 2017 annual meeting must be received by FedEx no later than April 17, 2017, to be eligible for inclusion in FedEx’s proxy statement and form of proxy for next year’s meeting. Proposals should be addressed to FedEx Corporation, Attention: Corporate Secretary, 942 South Shady Grove Road, Memphis, Tennessee 38120.
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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