PayPal Proxy Voting Guide by CorpGov.net. PayPal Holdings, Inc. (PYPL) operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. PayPal is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of three fund families when I checked and voted. Their annual meeting is coming up on May 24, 2017.
I voted FOR #5 Provide Right to Act by Written Consent and two shareholder proposals seeking reports. See how and why I voted other items below. I voted with the Board’s recommendations 40% of the time. View proxy via SEC’s EDGAR system (look for DEF 14A).
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
PayPal: ISS Rating
From the Yahoo Finance profile: PayPal Holdings, Inc.’s ISS Governance QualityScore as of May 1, 2017 is 4. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 3; 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: the Board.
PayPay: Compensation
PayPal’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Daniel H. Schulman at $18.9M in 2016. I am using Yahoo! Finance to determine the market cap ($59.3B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. PayPal is a large-cap company. According to EY Center for Board Matters, the 3-yr average CEO compensation at large-cap corporations is $12.7M in 2016, so pay was well above that amount. PayPal shares outperformed the NASDAQ over the most recent two year time period but underperformed during the most recent one year time period.
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.
PayPal earned a compensation score of “Superior,”
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.
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 also voted against the Compensation Committee, since they recommended the plan: David W. Dorman (Chairman), Wences Casares, Jonathan Christodoro.
PayPal: Accounting
#4 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.
PayPal: Board Proposals
PayPal Directors
Egan-Jones also recommended that clients vote against some directors. However, that endorsement was qualified with the following statement:
We recommend that clients WITHHOLD votes from the Company’s Chairman, Independent outside director John J. Donahoe and the Company’s CEO, Inside director Daniel H. Schulman, for holding more than one other public directorship. We believe that the Chairman, being responsible for the leadership of the Board and the creation of the conditions necessary for overall board and individual director effectiveness, and that the CEO, being the most critical role in a company, should hold no more than one other public directorship to ensure the valuable, effective, and prudent exercise of their fiduciary duties as Chairman and CEO and that their integrity and efficiency are not compromised.
I agreed.
#3 Approval of an Amendment to the Amended and Restated Certificate of Incorporation
Egan-Jones “determined that the proposed resolution contemplated thereby is advisable, substantively and procedurally fair to, and in the best interests of Company and its shareholders. We recommend a vote FOR this Proposal.” Frankly, I didn’t independently analyze this item. Since Egan-Jones recommended and Calvert, CBIS and Trillium voted FOR, I joined in – trusting their analysis.
PayPal: Shareholder Proposals
#5 Provide Right to Act by Written Consent
James McRitchie (that’s me) is the proponent. I voted ‘FOR.’ A growing number of firms (30% of the S&P 500) allow shareholders to act by written consent. Such rights are important, in cases of emergency where even a special meeting would take too long.
Vote FOR #5.
#6 Report on Sustainability and #7 Report on Feasibility of Net-Zero GHG Emissions. These proposals are warranted since they address issues of not only social responsibility but significant risk. PayPal does not currently disclose its greenhouse gas (GHG) emissions reduction goals, its environmental policies or its environmental oversight mechanisms.
Vote FOR #6 and #7.
PayPal: Votes Against Board Position in Bold 
As mentioned above, ProxyDemocracy.org had collected the votes of three funds when I voted. Proxy Insight reported additional votes from the Local Government Supernnuation Scheme. They voted against Donahue and Schulman.
| # | PROPOSAL TEXT | CorpGov | CALVERT | CBIS | TRILLIUM |
|---|---|---|---|---|---|
| 1a | Elect Director Wences Casares | Against | Against | Against | Against |
| 1b | Elect Director Jonathan Christodoro | Against | Against | Against | Against |
| 1c | Elect Director John J. Donahoe | Against | Against | Against | Against |
| 1d | Elect Director David W. Dorman | Against | Against | Against | Against |
| 1e | Elect Director Belinda J. Johnson | For | Against | Against | Against |
| 1f | Elect Director Gail J. McGovern | For | Against | Against | Against |
| 1g | Elect Director David M. Moffett | For | Against | Against | Against |
| 1h | Elect Director Daniel H. Schulman | Against | Against | Against | Against |
| 1i | Elect Director Frank D. Yeary | For | Against | Against | Against |
| 2 | Ratify Named Executive Officers’ Compensation | Against | Against | For | Against |
| 3 | Amend Certificate of Incorporation | For | For | For | For |
| 4 | Ratify PricewaterhouseCoopers LLP as Auditors | For | For | Against | For |
| 5 | Provide Right to Act by Written Consent Has 1 user-contributed link with more info | FOR | For | For | For |
| 6 | Report on Sustainability | For | For | For | For |
| 7 | Report on Feasibility of Net-Zero GHG Emissions | For | For | For | For |
PayPal: Issue for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- Proxy access provision whereby a shareholder, or a group of up to 15 shareholders holding at least 3% of the outstanding common stock for at least 3 years may nominate directors, so long as the number of directors elected via proxy access does not exceed 20% of the board.
PayPal: Mark Your Calendar
Stockholder Proposals: Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the 2018 Annual Meeting of Stockholders (“2018 Annual Meeting”) by submitting their proposals in writing to PayPal’s Corporate Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2018 Annual Meeting, our Corporate Secretary must receive the written proposal at our principal executive offices no later than December 14, 2017. If we hold our 2018 Annual Meeting more than 30 days before or after the one-year anniversary date of the Annual Meeting, we will disclose the new deadline by which stockholder proposals must be received by any means reasonably determined to inform stockholders. In addition, stockholder proposals must otherwise comply with the requirements of Rule 14a-8 under the Exchange Act, and with the SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to Corporate Secretary, PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131.
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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