United Natural Foods Inc (UNFI) is a distributor and retailer of natural, organic and specialty products. The Wholesale segment is engaged in the national distribution of natural, organic and specialty foods, produce and related products in the United States and Canada. The Other segment includes a retail division, which engages in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States; a manufacturing division, which engages in importing, roasting and packaging of nuts, seeds, dried fruit and snack items, and its branded product lines. Its operations consist of three operating divisions: Wholesale Division, Retail Division, and Manufacturing and Branded Products divisions. The Company offers 100,000 natural, organic and specialty foods, and non-food products, consisting of national, regional and private-label brands.
Their annual meeting is coming up on December 15, 2016. Can’t make it to Providence, RI? Attend virtually, using the dedicated 16-digit access proxy control number included in your proxy materials. ProxyDemocracy.org had collected the votes of 1 fund families when I checked. I voted FOR proxy access; AGAINST pay and compensation committee. I voted with the Board’s recommendations 55% 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.
United Natural Foods Inc: ISS Rating
From Yahoo Finance: United Natural Foods, Inc.’s ISS Governance QuickScore as of November 1, 2016 is 3. The pillar scores are Audit: 10; Board: 4; Shareholder Rights: 2; 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: Audit and Compensation.
United Natural Foods Inc: Compensation
United Natural Foods Inc’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Steven L. Spinner at $4.6M. I’m using Yahoo! Finance to determine market cap ($2.45B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B.United Natural Foods Inc is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $8.4M in 2014, so pay was well under that amount. United Natural Foods Inc shares outperformed the NASDAQ over the most recent one year time period but underperformed in the most recent two, five and ten year time periods.
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.
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
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 compensation issues. 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.
Given the factors listed by GMIAnalyst and recommendation Egan Jones, I will also vote “AGAINT” the say-on-pay item and will “WITHHOLD” votes from the members of the Compensation Committee, namely Independent outside directors Eric F. Artz, Ann Torre Bates and James P. Heffernan.
United Natural Foods 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 “AGAINST.”
United Natural Foods Inc: Board Proposals
As mentioned above, I voted “AGAINST” the pay package. Per the recommendation of Egan Jones and the votes disclosed by other investors, I also voted AGAINST members of the Compensation Committee as discussed above.
United Natural Foods Inc: Shareholder Proposals
#4 Proxy Access – There is only one shareholder proposal on the proxy. The proposal is mine, so you can be sure I voted ‘FOR.’ While the proposal seeks a number of amendments to reach ‘best practices’ standards, the most important involves raising the group limit for making nominations from 20 to something substantially higher. Under current provisions, even if the 20 largest public pension funds were able to aggregate their shares, they would not meet the 3% criteria at most of the companies examined by the Council of Institutional Investors, whose members have over $3T in assets. Saying that United Natural Foods Inc has proxy access is a little like saying Exxon is green because they recycle their office paper. Vote FOR proxy access to make it real.
United Natural Foods Inc: Votes Against Board Position in Bold 
As mentioned above, ProxyDemocracy.org had collected the votes of only one fund family when I voted. Proxy Insight had reported additional votes from 4 additional funds and fund families. Calvert, Canada Pension (CPPIB), and Teacher Retirement System of Texas all voted FOR every item, including proxy access amendments in #4. Colorado PERA voted against all directors except Artz and Dufresne. They voted for remaining items, including proxy access.
| NUM. | PROPOSAL TEXT | CorpGov.net | TRILLIUM |
|---|---|---|---|
| 1a | Elect Director Eric F. Artz | Against | Against |
| 1b | Elect Director Ann Torre Bates | Against | Against |
| 1c | Elect Director Denise M. Clark | For | Against |
| 1d | Elect Director Daphne J. Dufresne | For | Against |
| 1e | Elect Director Michael S. Funk | For | Against |
| 1f | Elect Director James P. Heffernan | Against | Against |
| 1g | Elect Director Peter A. Roy | For | Against |
| 1h | Elect Director Steven L. Spinner | For | Against |
| 2 | Ratify KPMG LLP as Auditors | For | For |
| 3 | Ratify Named Executive Officers’ Compensation | Against | Against |
| 4 | Proxy Access Included in 1 FocusList: Proxy Access | FOR | For |
United Natural Foods Inc: Issues for Future Proposals
Looking at SharkRepellent.net for other 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 25% of the voting power.
- Proxy access provisions are Lite. Proxy access provision whereby a shareholder, or a group of up to 20 shareholders, holding at least 3% of the outstanding common stock for at least three years may nominate one director, so long as the number of directors elected via proxy access shall not exceed the greater of 2 or 20% of the directors in office.
United Natural Foods Inc: Mark Your Calendar
Any proposal that a stockholder wishes to be considered for inclusion in our proxy statement for the 2017 Annual Meeting of Stockholders must be submitted to our corporate secretary, Joseph J. Traficanti, at 313 Iron Horse Way, Providence, Rhode Island 02908, no later than the close of business on July 7, 2017. We strongly encourage stockholders interested in submitting a proposal to contact legal counsel with regard to the detailed requirements of applicable securities laws. Submitting a stockholder proposal does not guarantee that we will include it in our proxy statement.
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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