Kellogg 2019

Kellogg 2019 Proxy Vote Recommendations

Kellogg 2019 annual meeting is April 26th. Stock price fared poorly for the last five years, so the CEO should not be paid as if he had average performance. Vote AGAINST pay. The Compensation Committee should not be reelected, since they recommended average pay for below average performance. Vote AGAINST Laschinger and Tasted. Vote AGAINST ratifying the auditor. They have served for more than seven years, so independence is questionable. Vote FOR declassifying the board, so that we can hold each member accountable every year.

Kellogg Company (K), together with its subsidiaries, manufactures and markets ready-to-eat cereal and convenience foods. solutions for corporations, institutions, families, and individuals worldwide. Most shareholders do not vote.  Reading through 70+ pages of the proxy takes too much time. Your vote will make only a small difference but could be crucial. Below, how I voted and why.

If you have read these posts related to my portfolio and proxy proposals for the last 24 years and trust my judgment, skip the 8 minute read. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 29% 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.

Kellogg 2019: ISS Rating

From the Yahoo Finance profile: Kellogg Company’s ISS Governance QualityScore as of April 1, 2019 is 7. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 9; Compensation: 1.

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. We need to pay close attention to Shareholder Rights and the Board.

Kellogg 2019 Proxy Voting Guide: Board Proposals

1. Kellogg 2019: Directors

Egan-Jones Proxy Services recommends FOR, without exception. Audit, Compensation and Corporate Governance/Nominating committees, were solely of Independent outside directors. Also, each director attended at least 75% of all the meetings of the Board and of the committees during fiscal year 2018.

Given severe sustained underperformance, I voted against the say-on-pay and members of the compensation committee up for election:

  • Mary Laschinger, Chair
  • Carolyn Tastad

Vote AGAINST Laschinger and Tastet.

2. Kellogg 2019: Executive Compensation

Kellogg’s Summary Compensation Table (p. 41) shows the highest paid named executive officer (NEO) was Chairman and CEO Steve Cahillane at $10.0M. I’m using Yahoo! Finance to determine market cap ($20.1B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Kellogg 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. However, Kellogg shares underperformed the S&P 500 over the most recent one, two, and five year time periods, even over 2019 to date. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 213:1.

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. They believe the company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.Egan-Jones

Given severe underperformance, I voted against and also voted against members of the compensation committee. I cannot support median pay for such poor performance. Yes, the CEO’s tenure is rather short but pay should be geared to past performance, not simply hopes for the future.


3. Kellogg 2019: Ratification of Independent Auditor

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. PricewaterhouseCoopers has served more than seven years. No other issues appear significant.


Kellogg 2019: Shareholder Proposals

4. Shareholder Proposal: Board Declassification

This good governance proposal is from me (James McRitchie), so of course I support it. Egan-Jones writes, “We believe that staggered terms for directors increase the difficulty for shareholders of making fundamental changes to the composition and behavior of a board. We prefer that the entire board of a company be elected annually to provide appropriate responsiveness to shareholders. We recommend a vote FOR this Proposal.”

89% of the S&P 500 have declassified their boards. According to one of our largest shareholders; BlackRock, “Directors should be elected annually to discourage entrenchment and allow shareholders sufficient opportunity to exercise their oversight of the board.” BlackRock voted for shareholder proposals to declassify boards 8 times out of 8 in 2018 as of early August, as did Vanguard. It is important to note, the Board of Kellogg’s does not oppose the proposal. Instead, it takes no position.

Vote FOR.

Kellogg 2019 CorpGov RecommendationsProxy Insight

Proxy Insight reported the votes of three funds as I wrote up my recommendations.  By now, they may have updated those reporting prior to the AGM. You can look up several funds on our Shareowner Action Handbook, You are sure to find more if you wait until the last day to vote online, April 25. Update: Norges Bank indicates they will vote FOR our declassify proposal.

1a-Elect Roderick D. Gillum
1b-Elect Mary Laschinger
1c-Elect Erica Mann
1d-Elect  Carolyn Tastad
2-Advisory Vote  Ratify NEO Compensation
3-Ratify Pricewaterhouse-Coopers as Auditors
4-Declassify Board of Directors
British Columbia Investment 

CorpGov Votes:

  1. Directors: AGAINST Laschinger and Tastet.
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Declassify the Board: FOR

Kellogg 2019: Issues for Future Proposals

SharkRepellentLooking at for anti-shareholder provisions:

  • Classified board with staggered terms.
  • No action can be taken without a meeting by written consent.
  • Shareholders cannot call special meetings.
  • Supermajority vote requirement (66.67%) to amend certain charter and certain bylaw provisions.

Kellogg 2019: Mark Your Calendar

Shareowner proposals submitted for inclusion in our proxy statement for the 2020 Annual Meeting of Shareowners must be received by us no later than November 7, 2019. Address is unclear but is probably: Kellogg Company, P.O. Box 3599, One Kellogg Square, Battle Creek, MI 49016-3599


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,” chosen by aspiration. 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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