Procter & Gamble Co (NYSE:PG), provides consumer packaged goods. Their annual meeting is coming up on October 11, 2016.
ProxyDemocracy.org had collected the votes of 3 fund families when I checked. Vote AGAINST pay, committee; FOR reports on political activity and how PG is addressing pro-discrimination laws. I voted with the Board’s recommendations 43% of the time. View Proxy Statement via iiWisdom.
Read Warnings below. What follows are my recommendations on how to vote the PG proxy in order to enhance corporate governance and long-term value.
PG: ISS Rating
From Yahoo Finance: The Procter & Gamble Company’s ISS Governance QuickScore as of September 1, 2016 is 2. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 3; Compensation: 4. 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: Shareholder Rights and Compensation.
PG: Compensation
PG’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO and President David Taylor at $14.4M. I’m using Yahoo! Finance to determine market cap ($239B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. PG 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. PG’s shares outperformed the S&P 500 over the most recent one, two, and ten year time periods but underperformed during the most recent five year period.
The MSCI GMIAnalyst report I reviewed gave Medivation 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”
The Company earns a compensation score of “Needs Attention”, and as such, we recommend that clients “WITHHOLD” votes from the members of the Compensation Committee, namely Independent outside directors Kenneth I. Chenault, Scott D. Cook, Terry J. Lundgren, W. James McNerney, Jr. and Margaret C. Whitman. 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.
PG: 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.
PG: Board Proposals
As mentioned above, I voted against the pay package and members of the compensation committee.
PG: Shareholder Proposals
#4 Report on Consistency Between Corporate Values and Political Activities by Green Century Equity Fund. There is almost nothing worse than a hypocrite. Shareholders must be concerned about the misalignment between PG’s publicly declared corporate values and its funding of public policy advocacy by other organizations, such as the American Legislative Exchange Council and U.S. Chamber of Commerce, which attack environmental safeguards aimed at addressing global climate change. That’s not only a poor use of corporate funds but also risks reputational damage from stakeholders.
#5 Report on Application of Company Non-Discrimination Policies in States with Pro-Discrimination Laws by NorthStar Asset Management. Businesses from PayPal to The Walt Disney Company have spoken out against pro-discrimination policies in various state. Executives from companies such as Apple, Intel, Google, Microsoft, EMC, PayPal, and Whole Foods Market are calling for repeal of state pro-discrimination policies. PG should join them or at least report on the potential costs of supporting discrimination against LGBT people.
PG: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to votes gathered by ProxyDemocracy.org, Proxy Insight had reported votes of Canada Pension Plan Investment Board (CPPIB) and Teacher Retirement System of Texas (TRS) which both voted with management on every item.
| # | PROPOSAL TEXT | CorpGov | CALVERT | DOMINI | TRILLIUM |
|---|---|---|---|---|---|
| 1a | Elect Director Francis S. Blake | For | For | For | For |
| 1b | Elect Director Angela F. Braly | For | For | For | For |
| 1c | Elect Director Kenneth I. Chenault | Against | For | Against | For |
| 1d | Elect Director Scott D. Cook | Against | For | For | For |
| 1e | Elect Director Terry J. Lundgren | Against | For | Against | For |
| 1f | Elect Director W. James McNerney, Jr. | Against | For | For | For |
| 1g | Elect Director David S. Taylor | For | For | Against | For |
| 1h | Elect Director Margaret C. Whitman | Against | For | Against | For |
| 1i | Elect Director Patricia A. Woertz | For | For | For | For |
| 1j | Elect Director Ernesto Zedillo | For | For | For | For |
| 2 | Ratify Deloitte & Touche LLP as Auditors | For | For | For | For |
| 3 | Ratify Named Executive Officers’ Compensation | Against | For | Against | Against |
| 4 | Report on Consistency Between Corporate Values and Political Activities | For | For | For | For |
| 5 | Report on Application of Company Non-Discrimination Policies in States with Pro-Discrimination Laws | For | For | For | For |
PG: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Unanimous written consent (default Ohio state statute).
- Special meetings can only be called by shareholders holding not less than 25% of the voting power (default Ohio state statute).
- Supermajority vote requirement (80%) to approve mergers not approved by the board with a stockholder holding 5% or more of the common shares.
- Proxy access provision 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 20% of the board or two directors.
PG: Mark Your Calendar
For business to be properly brought before an annual meeting by a shareholder (other than in connection with the election of Directors, see section entitled “Shareholder Recommendations of Board Nominees and Committee Process for Recommending Board Nominees” on page 16 of this proxy statement; or any matter brought pursuant to SEC Rule 14a-8), the shareholder must meet the requirements set forth in our Regulations, which are publicly available at www.pg.com. A shareholder wishing to bring such business before the 2017 annual meeting must provide such notice no earlier than February 13, 2017 and no later than July 13, 2017.
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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