NCR: Proxy Access & Pay Issues

NCR Corporation provides omni-channel technology solutions that enable businesses connect, interact, and transact with their customers worldwide. NCR is one of the stocks in my portfolio. had collected the votes of only one fund family when I checked and voted. Their annual meeting is coming up on Wednesday, April 26, 2017.

I voted FOR Proxy Access Amendments. See how and why I voted other items below. I voted with the Board’s recommendations 50% 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.

NCR: ISS Rating

From the Yahoo Finance profile: NCR Corporation’s ISS Governance QualityScore as of April 1, 2017 is 9. The pillar scores are Audit: 5; Board: 9; Shareholder Rights: 9; Compensation: 6. 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: the Board and Shareholder Rights.

NCR: Compensation

NCR’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO William Nut at $11.9M in 2016. I am using Yahoo! Finance to determine the market cap ($5B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. NCR is a mid-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $5.3M in 2015, so pay was well above that amount. NCR’s shares outperformed the S&P 500 over the most recent on, two, and five year time periods, but underperformed in the most recent ten year time period.

Proxy Advisor Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.

NCR earned a compensation score of “Neutral,”

After taking into account both the quantitative and qualitative measures outlined below, we believe that shareholders should 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 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.

Despite the recommendation from Egan-Jones, I voted “AGAINST” the say-on-pay item. The “Lake Woebegone effect,” where everyone is above average and the averages are recalculated upward every year, has to stop. We cannot just keep voting in favor of higher and higher pay packages. I could understand paying more than median, since NCR has done well but that much better. I also would have voted against all the compensation committee members: Linda Fayne Levinson (Chair), Edward “Pete” Boykin, Chinh E. Chu and Gary J. Daichendt. Unfortunately, the board is in transition from being classified and I don’t have the opportunity to vote out those members this year.

NCR: 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. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar, so voted FOR.

NCR: Board Proposals

As mentioned above, I voted “Against” the pay package. As is my habit, when I vote against the pay package, I also vote against/withhold on the compensation committee.

With regard to #4, Amendment of NCR Management Incentive Plan, Egan-Jones recommended:

While we recognize that approval of this proposal will help the Company to attract, retain, and motivate its executives and key personnel whose efforts are essential to its success, we believe that the plan could lead to a potential excessive dilution to the interests of the shareholders. We encourage that companies disclose the potential maximum dollar limit of the plan so we can calculate the potential cost of the said plan. We recommend a vote AGAINST this Proposal.

That seems like excellent advice to me, so I did the same.

With regard to #5, Approval of 2017 Stock Incentive Plan, Egan-Jones recommended:

After taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined below, 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.

Again, I took that advice. As mentioned above, I voted FOR #6, confirming the auditor.

NCR: #7 Shareholder Proposal on Amending Proxy Access Bylaws

Myra K. Young (my wife) is the proponent. I voted ‘FOR.’ NCR has a “lite” version of proxy access. The following amendments would give shareholders robust proxy access that could actually be used:

20 Member Limit

CII - Proxy Access: Best PracticesCurrent bylaws limit nominating groups to 20 members. The Council of Institutional Investors studied such provisions and found their members, who hold in excess of $3 trillion in assets, would not be able to meet the requirement of 3% held for 3 years with a 20-member limit. The proposal seeks removal of the cap on the number of members that can form a group.

One thing few take into account is that shares are not consistently held. Funds frequently buy or sell shares. For example, during the last reporting period (quarter), 95 institutions owned 0.15% of NCR shares. Any 20 could theoretically form a nominating group. However, those qualifying shares need to be held for 3 years. Typically, that cuts the number in half. Additionally, most of the largest fund holders in NCR have never filed a proxy proposal, so are very unlikely to lead a nominating group.

Three reasons for this inactivity come to mind:

  1. These funds frequently run company retirement programs. Research indicates they vote against management less frequently when they have such contracts. (Proxy Voting Conflicts: Asset Manager Conflicts of Interest in the Energy and Utility Industries, 50/50 Climate Project, 4/16/2017) Since conflicts of interest reduce voting against management for fear of losing contracts, we can assume filing proposals would have an even greater chance of reducing the likelihood of contract renewal.
  2. Since they are primarily indexed, these funds compete largely based on cost. Although the cost is relatively small, filing proposals does require time and money. Any benefit derived goes equally to competitors holding a similar amount of stock, while all expenses are borne solely by proponents. Filing proposals would put such funds at a competitive disadvantage.
  3. These funds hold such a relatively high percentage of stock in most companies that they might be able get the type of changes typically sought through shareholder proposals by simply expressing their desires to company management. Therefore, they have no need to file proposals.

Proxy Access (P&I)If NCR were to lift the cap to 40, that would raise the number of possible participants, each holding 1/40 of 3%, to 130. Again, we can assume this number might also be cut in half by the 3 year holding period. However, these additional shareholders, with fewer but still substantial shares (valued at more than $3.25M each) includes several large public pension funds that submit proxy proposals and have participated in activist campaigns at other companies. If NCR performance slipped for an extended period of time and the Board failed to act, this group could step in a form a nominating group.

The SEC rulemaking to provide universal proxy access provided no cap. That rulemaking was opposed by the US Chamber of Commerce and the Business Roundtable. It was overturned in federal court. In Shareholder Access and Uneconomic Economic Analysis: Business Roundtable v. SEC, J Robert Brown Jr. discusses some of the ramifications. From his abstract:

The DC Circuit struck down the rule, imposing a “nigh impossible” standard with respect to the applicable economic analysis. The decision far exceeded the standards set out by Congress and the courts with respect to cost/benefit analysis. Moreover, in making its decision, the panel relied on mistaken interpretations of the fiduciary obligations of both boards and pension plans.

The Court essentially agreed with arguments that boards had a fiduciary duty to oppose proxy access candidates, rendering SEC cost estimates too low. In fact, the duty of care is process driven.  As long as the process is proper, the board can decide to resist or not resist an access challenge.

Renomination Limit

The second requested change addresses a bylaw provision that prohibits a proxy access candidate who receives less than 25% of the vote to be nominated as a proxy access candidate for the following two years. We would prefer a total deletion of that cap. However, in the spirit of cooperation we included a lower 10% cap on renomination in our proposal. No proxy access candidates have ever run at any company. When it happens, it will be novel and will take some getting used to, just like any new idea — like integrating lunch counters. Shareholders may take some time to get used to the idea of proxy access candidates. Achieving a 25% threshold could be extremely difficult. A 10% threshold is more likely to be achieved.


With regard to item #7, Shareholder Proposal to Amend Proxy Access Bylaw, Egan-Jones recommended as follows:

We note that the Company has implemented Proxy Access through a change in its bylaws, however, we believe that shareholders should have the right to nominate their own representatives according to the shareholders’ criteria proposed in this proposal. As such, we recommend a vote FOR this Proposal.

Of course, we heartedly agree and hope you will join with us in voting FOR this proposal.

NCR: Votes Against Board Position in Bold Proxy Insight

As mentioned above, had collected the votes of only one fund when I voted.  Proxy Insight reported additional votes from Teacher Retirement System of Texas (TRS) and Florida State Board of Administration. Both voted AGAINST compensation, bonus and stock plans and FOR amendments to proxy access.

1.1Elect Director Richard L. ClemmerForFor
1.2Elect Director Kurt P. KuehnForFor
2Advisory Vote to Ratify Named Executive Officers’ CompensationAgainstAgainst
3Advisory Vote on Say on Pay FrequencyOne YearOne Year
4Amend Executive Incentive Bonus PlanAgainstAgainst
5Approve Omnibus Stock PlanAgainstAgainst
6Ratify PricewaterhouseCoopers LLC as AuditorsForAgainst
7Proxy Access AmendmentsFORFor

NCR: Issue for Future Proposals

SharkRepellentLooking at for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:

  • Unanimous written consent.
  • Proxy access provision whereby a shareholder or group of no more than 20 shareholders holding at least 3% of the outstanding common shares continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed the greater of two individuals or 25% of the directors up for election. Nominees who receive less than 25% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings.
  • Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
  • Supermajority vote requirement (66.67%) to approve mergers (default Maryland state statute).
  • Supermajority vote requirement (80%) to amend certain charter and certain bylaw provisions.

NCR: Mark Your Calendar

Stockholders interested in presenting a proposal pursuant to SEC Rule 14a-8 for possible inclusion in the proxy materials for NCR’s 2018 Annual Meeting of Stockholders must follow the procedures found in SEC Rule 14a-8 and the Company’s bylaws.  To be eligible for possible inclusion in the Company’s 2018 proxy materials, all qualified proposals must be received by NCR’s Corporate Secretary no later than 5:00 p.m. Eastern Time on November 17, 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.

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