PayPal Holdings (PYPL), operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. Its payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products.
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, have values aligned with mine, 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 23, 2018. I voted with the Board’s recommendations 44% 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.
PayPal Holdings: ISS Rating
From the Yahoo Finance profile: PayPal Holdings, Inc.’s ISS Governance QualityScore as of April 30, 2018 is 3. The pillar scores are Audit: 2; Board: 5; Shareholder Rights: 3; Compensation: 6.
PayPal Holdings: Board Proposals
1. PayPal Holdings Voting Guide: Directors
Egan-Jones Proxy Services recommends “For” all board nominees, except C) John J. Donahoe and 1H) Daniel H. Schulman. With regard to Donahoe, according to Egan-Jones’ Proxy Guidelines “the Chairman, being responsible for the leadership of the Board and the creation of the conditions necessary for overall board and individual director effectiveness, should hold no more than one other public directorship to ensure the valuable and prudent exercise of his fiduciary duties as a Chairman and that his integrity and efficiency are not compromised.” Donahoe serves on two other boards: Nike and ServiceNow. Similarly, our CEO, Mr. Schulman also serves on the boards of Flex Ltd. and Symantec Corporation. I agree; I want our chairman and our CEO to be focused on PayPal, not other companies. Since I voted against the pay package, I also voted against all members of the compensation committee: David W. Dorman (Chair), Wences Casare, Jonathan Christodoro
Vote AGAINST: Wences Casares, Jonathan Christodoro, John J. Donahoe, David W. Dorman, and Daniel H. Schulman.
2. PayPal Holdings: Executive Compensation
PayPal Holdings’ Summary Compensation Table shows the highest paid named executive officer (NEO) was EVP William J. Readyat $26.2M, well over four times what he was paid the year before. I’m using Yahoo! Finance to determine market cap ($93.7B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. PayPal Holdings 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 way over that amount. PayPal Holdings shares outperformed the Nasdaq over the most recent one, two, and five year time periods. It does not appear 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. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 274:1. That ratio would be considerably higher if based on the highest pay NEO.
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. “Superior” is their rating given on compensation issues for PayPal Holdings and they recommend For the say-on-pay item. Given above median pay, and my concern with growing wealth inequality, I recommend:
Vote “AGAINST” the say-on-pay item and the members of the compensation committee.
3. PayPal Holdings: Amended and Restated 2015 Equity Incentive Plan
Vote AGAINST, as too dilutive.
4. PayPal Holdings: Employee Stock Purchase Plan
Vote FOR, since the Employee Stock Purchase Plan will incentivize a broad base of employees.
5. PayPal Holdings: 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. E-J recommends For.
PayPal Holdings: Shareholder Proposals
6. Shareholder Proposal: Enhance Proxy Access
This proposal, submitted by John Chevedden, requests the Company enhance proxy access by doing away with the 20 member group nomination limitation and raising the number of directors that can be so nominated to 25% or two. I have submitted many similar proposal to meet Council of Institutional best practices.
7. Shareholder Proposal: Political Transparency
This is my proposal (James McRitchie). The proposal is good governance, simply requesting a report to give an account on political contributions. It would do nothing to prevent any such contributions. As I have reminded readers in previous posts, the US Supreme Court’s decision in Citizens United v. Federal Election Commission was based on a false premise. Justice Kennedy’s majority opinion justifies the decision by pointing to the Internet.
With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.
The decision also said that disclosure
permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.
And the Court expressed enthusiasm that technology today makes disclosure “rapid and informative.” Yet, corporations are not required to make the disclosures of lobbying expenditures and political contributions to shareowners as Justice Kennedy seems to have believed. Vote FOR.
8. Human and Indigenous Peoples’ Rights
This came from John C. Harrington TTEE Harrington Investments
Shareholders request that PayPal modify its committee charters, Bylaws or Articles of Incorporation to ensure that our Human and Indigenous Peoples’ Rights Policies clearly delineate the fiduciary duties of Board and management to respect and honor global human and indigenous peoples’ rights in all relevant business transactions..
The proposal could help PayPal’s reputation and quell calls of hypocrisy.
Proxy Democracy is still down. I am starting to look for contributions to bring it back to life. If you know anyone willing to donate $10.000 or more to a charitable nonprofit, please contact me. Proxy Insight had reported on Calvert voted and Australia’s Super, which voted in favor of all items. Canada Pension Plan (CPPIB) and Texas Teachers both voted in favor of all items, except the last shareholder proposal. CBIS voted For all items, except against the auditor. Trillium voted against the pay plan but for all other items. Domini also voted against the pay plan and against 1B) Andy D. Bryant and 1D) Omar Ishrak. CorpGov Votes:
- Directors: AGAINST Wences Casares, Jonathan Christodoro, John J. Donahoe, David W. Dorman, and Daniel H. Schulman. Vote for the rest (or leave the items blank and your vote will get counted ‘For.’)
- Ratify Executive Pay: AGAINST
- Equity Incentive Plan: AGAINST
- Employee Stock Purchase Plan: FOR
- Auditor: FOR
- Proxy Access Enhancement: FOR
- Political Transparency: FOR
- Human Rights: FOR
PayPal Holdings: 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.
PayPal Holdings: Mark Your Calendar
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, some stockholder proposals may be eligible for inclusion in our 2019 proxy statement. These stockholder proposals must be submitted, along with proof of ownership of our stock in accordance with Rule 14a-8, to our principal executive offices in care of our Corporate Secretary by one of the means discussed below in the “Communicating with Us” section of this proxy statement. Failure to deliver a proposal in accordance with this procedure may result in the proposal not being deemed timely received. We must receive all submissions no later than the close of business (5:00 p.m. Pacific Time) on December 6, 2018.
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.