PayPal 2019

PayPal 2019 Proxy Guide

PayPal 2019 annual meeting is May 22nd. Vote AGAINST Casares, Christodoro, Donahoe, Dorman, McGovern, Schulman, Exec Pay, & Auditor. Vote FOR Disclose Political Contributions & Human Rights.

PayPal Holdings, Inc. (PYPL) operates as a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide. Most shareholders do not vote.  Reading through 85+ pages of the proxy takes too much time. Your vote 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 37.5% 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 2019: ISS Rating

From the Yahoo Finance profile:

PayPal Holdings, Inc.’s ISS Governance QualityScore as of April 1, 2019 is 3. The pillar scores are Audit: 2; Board: 4; Shareholder Rights: 4; Compensation: 6.

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 members of the Board, Shareholder Rights and Compensation issues.

PayPal 2019 Proxy Voting Guide: Board Proposals

1. PayPal 2019: Directors

Egan-Jones Proxy Services recommends Against John J. Donahoe, Daniel H. Schulman for being over-boarded.

Since I voted against Executive Compensation I also voted against all members of the compensation committee: David W. Dorman, Wences Casares, Jonathan Christodoro, Gail J. McGovern.

Vote AGAINST

2. PayPal 2019: Executive Compensation

PayPal’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Daniel H. Schulman at $37.8M (no, that is not a typo). I’m using Yahoo! Finance to determine market cap ($125B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. PayPal 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. PayPal shares outperformed the NASDAQ over the most recent one, two, and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 313 to 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 far above median pay and my concern for growing wealth inequality, I voted against and also voted against the members of the compensation committee: David W. Dorman, Wences Casares, Jonathan Christodoro, Gail J. McGovern.

Vote AGAINST.

3. PayPal 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, LLP has served more than seven years. No other issues appear significant.

Vote AGAINST.

PayPal 2019: Shareholder Proposals

Vote Rigging on Shareholder Proposals: At PayPal, “abstentions” (not just votes left blank) are treated as votes AGAINST.  If you mark your ballot to ABSTAIN because you do not want your vote counted, Illumina will ignore your wish and instead count it as a vote AGAINST.  This vote-rigging leads me to another reason to vote against Gail J. McGovern, Chair of the governance committee. Her committee approved this deceitful tactic.  If Illumina is going to count ABSTAIN as AGAINST, do not offer ABSTAIN as a voting option.

4. Shareholder Proposal: Disclosure of Political Contributions

This good governance proposal comes from me, James McRitchie, so of course I voted FOR. Egan-Jones disagrees. The Company argues they comply with the laws. However, the laws allow dark money contributions.

Vote: FOR

5. Shareholder Proposal: Regarding Human and Indigenous Peoples’ Rights

This good governance proposal is from John C. Harrington. The proposal simply asks that PayPal modify its charters, Bylaws and/or Articles of Incorporation, to articulate the fiduciary duties of Board and management to ensure due diligence on Human and Indigenous Peoples’ Rights. That seems reasonable, since none of those documents contain policies or statements that outline PayPal’s official company policies on international Human Rights. Egan-Jones disagrees.

Vote FOR.

PayPal 2019 CorpGov RecommendationsProxy Insight

Proxy Insight had reported the votes of only one fund as I wrote up my recommendations.  Australia’s Local Government Superannuation Scheme voted against Donahoe and pay. Other votes will be loaded soon. I see there were 171 meetings today, so hard to keep up. 

In looking up a few funds on our Shareowner Action Handbook, I see Calvert voted against Christodoro for being over-boarded and pay, which exceeds the 75th percentile of the company’s peer group. The CEO’s total pay exceeds 4 times the average NEO. Calvert voted for all items. Praxis voted against pay. Trillium voted against Adkins, Dorman, and McGovern because PayPal lacks at least two minority directors and also voted against pay.

CorpGov Votes:

  1. Directors: AGAINST: Wences Casares, Jonathan Christodoro, John J. Donahoe, David W. Dorman, Gail J. McGovern, Daniel H. Schulman
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Disclose Political Contributions: FOR
  5. Regarding Human and Indigenous Peoples’ Rights: FOR

PayPal 2019: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • 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 lite: A shareholder, or a group of up to 20 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. Nominees who receive less than 10% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings.

PayPal 2019: Mark Your Calendar

Stockholders may present proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2020 Annual Meeting of Stockholders (“2020 Annual Meeting”), our Corporate Secretary must receive the written proposal at our principal executive offices no later than December 12, 2019.

If we hold our 2020 Annual Meeting more than 25 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-8under the Exchange Act 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.

Failure to deliver a proposal in accordance with this procedure may result in the proposal not being deemed timely received.

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,” 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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