General Electric Company (GE), operates as a digital industrial company worldwide. It operates through Power, Renewable Energy, Oil & Gas, Aviation, Healthcare, Transportation, Lighting, and Capital segments. Most shareholders do not vote because reading through 70 pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.
General Electric: ISS Rating
From the Yahoo Finance profile: General Electric Company’s ISS Governance QualityScore as of April 1, 2018 is 3. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 2; Compensation: 4.
General Electric: Board Proposals
A 1-12. General Electric Proxy Voting Guide: Directors
Egan-Jones Proxy Services recommends “For,” with the exception of: A3) John J. Brennan, A7) Edward P. Garden, and A10) James J. Mulva. Brennan and Garden serve on the compensation committee responsible for recommending the pay package, which Egan-Jones recommends against. Mulva has served for more than ten years and sits on the audit committee. Since major committees, such as the audit committee should be composed only of independent directors, they also recommend voting against Mulva. I voted with the recommendations of Egan-Jones with regard to directors.
B1. General Electric: Executive Compensation
General Electric’s Summary Compensation Table shows the highest paid named executive officer (NEO) was former Vice Chairman and CFO Jeff Bornstein at $6.9M after adjusting for cancelled RSUs. I’m using Yahoo! Finance to determine market cap ($119B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. General Electric 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 under that amount. However, General Electric shares substantially underperformed the S&P500 over the most recent one, two, and five year time periods. General Electric appears on As You Sow‘s list of the 100 Most Overpaid CEOs. Prior reports have shown that being on that list is correlated with lower returns in subsequent years.
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 their rating given on compensation issues for General Electric. Egan-Jones concludes:
After taking into account both the quantitative and qualitative measures outlined below, 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 continued underperformance and the recommendation of Egan Jones, I voted “AGAINST” the say-on-pay item.
B2. General Electric: Approval of the GE International Employee Stock Purchase Plan
Taking into account the maximum amount of effective dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined below, we believe that shareholders should support the passage of this plan as proposed by the board of 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 FOR.
B3. General Electric: Ratify Auditors
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 notes that KMPG, LLP has been serving as the Company’s auditor for more than seven years and their independence is compromised. They recommend AGAINST. It has actually been 109 years. Time for rotation. I voted AGAINST.
General Electric: Shareholder Proposals
C1. General Electric: Independent Chair
The proposal comes from Kenneth Steiner. E-G writes: “We believe that there is an inherent potential conflict in having an Inside director serve as the Chairman of the board. Consequently, we prefer that companies separate the roles of the Chairman and CEO and that the Chairman be independent to further ensure board independence and accountability. After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote FOR this Proposal.”
A 2012 report by GMIRatings, The Costs of a Combined Chair/CEO, found companies with an independent chair provide investors with five-year shareholder returns nearly 28 percent higher than those headed by a party of one.
Still, the biggest reason to split the roles is to bring more accountability and oversight to the CEO’s job and to free the board to truly act as the CEO’s boss. Some argue a ‘lead director’ is enough. However, lead directors are not considered the equivalent of board chairmen by the board or shareowners, even when such directors are provided with comparable authorities. A recent EY report found titles matter. Lead directors typically cannot call shareholder or board meetings, nor to the lead CEO performance evaluations.
According to a Spencer Stewart survey of board members, 64% agree or strongly agree that splitting the positions results in more independent thought by directors, while 60% affirm that it leads to more effective CEO evaluations. ( See page 21.)
I voted FOR.
C2. General Electric: Cumulative Voting
This is a proposal from Martin Harangozo but I have introduced similar proposals, so of course I voted FOR. E-G drank the Kool-Aid on this one, as far as I am concerned, buying into the arguments that cumulative voting will allow a “group of stockholders with special interests to elect one or more directors to the Company’s Board of directors to represent their particular interests. Such a stockholder or group of stockholders could have goals that are inconsistent, and could conflict with, the interests and goals of the majority of the Company’s stockholders.”
I see it much like proportional representation in government, which tries to resolve the unfairness of majoritarian and plurality voting systems where the largest parties receive an “unfair” “seat bonus” and smaller parties are disadvantaged and have difficulty winning any representation at all. I think Australia, European Union and others have benefited from proportional representation.
I voted FOR.
C3. General Electric: Deduct Impact of Stock Buybacks from Executive Pay
This is my wife’s proposal (Myra Young) on my advice, so of course I voted FOR. See my extensive post on the issue at GE PX14A6G: Deduct Stock Buyback Impact. This should be a huge issue in this year of Trump tax cuts. Unfortunately, proxy advisors and the press are largely sweeping it under the rug. Perhaps it will resurface next year after they have had time to digest the impact of huge unearned executive bonuses.
I voted FOR.
C4. General Electric: Political Lobbying and Contributions
This proposal is sponsored by the right-leaning National Center for Public Policy Research. I certainly do not agree with their supporting statement. However, the resolved wording is nearly identical to what I have used. Just as I am favor of political parties working across the aisle whenever possible, I am happy to support this proposal, even though I do not agree with the sponsor on most issues.
I voted FOR.
C5. General Electric: Buyback Report
Dennis Rocheleau’s proposal asks for a report of the company’s share repurchase programs for fiscal years 2008 through 2017 within (60) days of the 2018 annual meeting. He asks that it be mailed to those who attend the annual meeting and be available to others upon request. Why not require it be put on the website? I am not sure implementation would actually add new information to what is already made available. However, because it draws attention to an issue we think is a problem. I voted FOR.
Unlike the prior three shareholder proposals, Egan-Jones recommends in favor.
I voted FOR.
C6. General Electric: Written Consent
This proposal from Kenneth Steiner calling for the right of shareholders to act by written consent is simple good governance. I have submitted many such proposals myself. Egan-Jones also recommends in favor.
I voted FOR.
Proxy Democracy was having trouble with their site as I posted this. Proxy Insight reported on Texas Teachers, Calvert and CBIS. I expect they will report out a few more votes before the meeting. I normally cut and paste from the Proxy Democracy grid but that is out today, so I will just skip the usual grid on this one. I voted against members of the compensation committee, Mulva for lack of independence on audit committee, pay package and auditors. I voted for all other items.
General Electric: Issues for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners:
- Unanimous written consent (default New York state statute).
- Proxy access provisions are Lite. A shareholder or group of no more than 20 shareholders 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. 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.
- Supermajority vote requirement (66.67%) to approve mergers (default New York state statute).
General Electric: Mark Your Calendar
SEC rules permit shareowners to submit proposals for inclusion in our proxy statement by satisfying the requirements specified in SEC Rule 14a-8. Such proposals must be received by later than close of business on November 14, 2018. The easiest way to send is via email to [email protected].
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. For more on the subject, see CEO Pay Machine Destroying America.