Kellogg 2021 annual meeting is April 30, 10 Pacific Time. To attend, vote, and submit questions during the Annual Meeting visit www.virtualshareholdermeeting.com/K2021 and enter the 16-digit control number. I recommend voting in advance. To enhance long-term value. Vote AGAINST Zack Gund and Don Knauss, Pay, and Auditor. Vote FOR Reduce Supermajority Requirements and Shareholder Right to Call Special Meetings. WARNING: I may change my votes after I see how disclosing funds voted. Check back two days before the meeting.
Kellogg Company, together with its subsidiaries, manufactures and markets ready-to-eat cereal and convenience foods. Most shareholders do not vote. Reading through 70+ pages of the proxy takes time but 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 25 years and trust my judgment, skip 7 minutes of reading. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.
Kellogg 2021: ISS & Sustainalytics Ratings
Kellogg Company’s ISS Governance QualityScore as of April 1, 2021 is 7. The pillar scores are Audit: 3; Board: 6; Shareholder Rights: 9; Compensation: 4.
Kellogg 2021: Board Proposals
Egan-Jones Proxy Services recommends against Zack Gund and Don Knauss. Both are Compensation Committee members responsible for poor pay recommendation. Additionally, Knauss has served for longer than 10 years, so should not be considered independent.
Vote: AGAINST Zack Gund and Don Knauss
2. Executive Compensation
Kellogg’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Steve Cahillane at $11.7M. I’m using Yahoo! Finance to determine the market cap ($22B). Large-caps are $10B, mid-cap as $2-10B, and small-cap are less than $2B. Kellogg is a large-cap company.
According to MyLogIQ, the median CEO compensation at large-cap corporations was $13M in 2020. Steve Cahillane at $11.7M is below that amount. Kellogg shares significantly underperformed 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 279 to 1.
Egan-Jones Proxy Services found the Company’s compensation policies and procedures are “not effective or strongly aligned with the long-term interest of its shareholders.” Agreed.
3. 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 served more than seven years. No other issues appear significant
4. Reduce Supermajority Requirements
My proposal to adopt a simple majority standard won 53% of the vote last year. Following that vote, this year the Board is asking shareholders to approve amendments to the articles of incorporation and bylaws to accomplish that goal. Egan-Jones believes the move will “strengthen the Company’s corporate governance practice.”
Sidebar: In 2019 my proposal to declassify the board won 62% of the vote. In 2020 the Board asked shareholders to approve amendments to accomplish that goal and we did. Hopefully, this year we will pass this measure to reduce supermajority standards but it will take a large turnout.
Kellogg 2021: Shareholder Proposals
5. Shareholder Right to Call a Special Meeting
This good corporate governance proposal comes from me, James McRitchie, so of course I voted FOR. Egan-Jones also recommends Against, believing the 15% level requested is too low. The Board takes no position. Having the right to call a special meeting allows shareholders to hold the board accountable. The right is associated with a higher shareholder value.
Proxy Insight reported no votes when I last checked.
In looking up a few funds in our Shareowner Action Handbook, I see Calvert, NYC Pensions, and Norges voted For all items.
- Directors: AGAINST Zack Gund and Don Knauss
- Executive Pay: AGAINST
- Auditor: AGAINST
- Reduce Supermajority Standard: FOR
- Shareholder Right to Call a Special Meeting: FOR
Kellogg 2021: Issues for Future Proposals
Looking at insightia for anti-shareholder provisions:
- No requirement to separate CEO and Chair
- Shareholders have no right to call special meetings
- No right of shareholders to act by written consent
Kellogg 2021: Mark Your Calendar
Shareowner proposals submitted for inclusion in our proxy statement for the 2022 Annual Meeting of Shareowners must be received by us no later than November 10, 2021.
Be sure to vote for each item on the proxy. Any items left blank get automatically 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.” Peer groups are often chosen by aspiration. The “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average.” However, corporations live in the real world. All CEOs are above average. Ignoring that fact partly explains why their collective pay spiraling out of control. We need to slow the pace of money going to the 1% or our economy will fail to serve the majority. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.