AXP

AXP 2018 Proxy Voting Guide

AXP (American Express), together with its subsidiaries, provides charge and credit payment card products and travel-related services to consumers and businesses worldwide.  Most shareholders do not vote because reading through 100+ 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.

The annual meeting is coming up on May 7, 2018. I voted with the Board’s recommendations 47% of the time. View Proxy Statement 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.

AXP: ISS Rating

From the Yahoo Finance profile: American Express Company’s ISS Governance QualityScore as of April 1, 2018 is 8. The pillar scores are Audit: 2; Board: 5; Shareholder Rights: 3; Compensation: 10.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. Therefore, we need to pay closer attention to the board and executive compensation.

AXP: Board Proposals

1.  AXP Proxy Voting Guide: Directors

Egan-Jones Proxy Services recommends “For,” with the exception of: 1C) Peter Chernin and 1L) Ronald L. Williams because they are on key committees and their independence is compromised by 10 years of more of service. I’m not quite ready to set that as a voting standard. However, I voted against both and three others because they were on the Compensation Committee and recommended pay that was too high: VOTE AGAINST John J. Brennan, Peter Chernin, Ralph de la Vega, Samuel J. Palmisano, and Ronald A. Williams.

2. AXP: 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 the auditor has been serving as the Company’s auditor for over seven years and their independence is compromised. I also believe that the companies should consider the rotation of their audit firm to ensure auditor objectivity, professionalism and independence. I have not set a specific number of years. In this case I voted FOR.

3. AXP: Executive Compensation

AXP Summary Compensation Table shows the highest paid named executive officer (NEO) was former CEO/Chair, now Vice Chair, S.J. Squeri at $19.2M. I’m using Yahoo! Finance to determine market cap ($84B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. AXP 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. AXP shares underperformed the S&P500 over the most recent one- and two-year time periods. AXP underperformed over the most recent five-year period. AXP 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. “Good” is their rating given on compensation issues for Starbucks Corp. Egan-Jones concludes:
Egan-Jones

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.

Given continued long-term underperformance, above median pay, my concern with income and wealth inequality and AXP’s inclusion on As You Sow’s list of most overpaid CEO, I voted “AGAINST” the say-on-pay item.

AXP: Shareholder Proposals

4. Right to Act by Written Consent

This proposal by William Steiner is like many I have submitted and is simple good governance to facilitate rapid action in emergency situations. Vote FOR. Egan-Jones also recommended FOR.

5. Independent Board Chairman

This proposal comes from my wife (Myra Young) on my advice. Again, this is simply good governance. The Board Chair normally leads efforts to evaluate, hire and fire the CEO. You should not be your own boss. The Council of Institutional Investors and most large pension funds advocate that boards should be chaired by an independent director. Vote FOR.

AXP CorpGov Recommendations: Votes Against Board Position in Bold Proxy Insight

Unfortunately, Proxy Democracy is still down. Proxy Insight reported on Canada Pension Plan (CPPIB), Texas Teachers, Calvert, Trillium, CBIS and Domini. All voted AGAINST the pay package and FOR both shareholder proposals. Trillium voted against all management endorsed items except the auditor. CBIS voted against the auditor. Domini voted against Squeri, presumably because they believe the former CEO/Chair should not sit on the Board. I agree.

I voted AGAINST: John J. Brennan, Peter Chernin, Ralph de la Vega, Samuel J. Palmisano, S.J. Squeri, and Ronald A. Williams, as well as executive compensation.

I voted FOR: directors not named above, the auditor and both shareholder proposals (Written Consent and Independent Chair).

SharkRepellentAXP: Issues for Future Proposals

Looking at SharkRepellent.net for other provisions unfriendly to shareowners:

  • Unanimous written consent (default New York state statute).
  • Special meetings only by shareholders holding not less than 25% of voting power.
  • 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.

AXP: Mark Your Calendar

To be considered for inclusion in next year’s proxy statement, any shareholder proposals submitted in accordance with SEC Rule 14a-8 must be received by our Secretary at our principal executive offices no later than November 19, 2018. Any such proposals must comply with all of the requirements of SEC Rule 14a-8.

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. For more on the subject, see CEO Pay Machine Destroying America.

   

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