Quick notes on low votes

Not all the votes are in, but there are already a significant number low votes and outright losses among the S&P 500 on pay packages. So far there are seven S&P 500 companies that have lost majority votes that I’m aware of for this calendar year: Ameriprise, Disney, Halliburton, Mattel, Mondelez, Western Digital and Wynn Resorts. Chesapeake Energy which was removed from the S&P 500 on March 19, 2018 due to “market capitalization changes” also had a failed pay vote. 

Most of the early low votes and failures fell under two categories: transition packages and pay/performance disconnect. In many instances both factors were in play.  

The extension of employment contracts and packages for departing executives both drew ire. The first S&P 500 failure of the calendar year was Disney on March 18, where 54.5% of shareholders voted against the proposal.   The Bob Iger agreement – extended through 12/21 -- included significant increases to his base salary, target cash incentive, and annual equity grant.  Many shareholders balked at the sheer size of the $100 million equity grant and believed the goals for performance share units were not significantly rigorous.

The incoming CEO Van de Put at Mondelez’s stunning package of over $44 million also was too much for shareholders to swallow. Only 44.6% supported and over 55.4% voted against. This included $10 million in cash. The idea was that these were “make whole” payments, but it is hard to determine how much value de Put gave up when joining the company. Packages like this show a lack of succession planning not only reflected in the package of the new hire, but retention awards to encourage two other executives to stay. The board also exercised its discretion in in enhancing the payout of departing CEO Irene Rosenfield unvested equity awards.

At Halliburton, which had a mid-year CEO transition, only 42.6% of shareholders voted in favor compared to 57.4% against. The outgoing CEO David Lesar received maximum payment on his annual incentive despite having served less than the full year, will receive significant other awards in exchange for relinquishing his severance. Incoming CEO Jeff Miller received long term incentives that were primarily time-based, and a promotion award that is extremely unusual for an internal promotion.

Wynn also had a CEO transition – an extraordinary one – but it was the pay for performance disconnect that seems to have inspired the votes against. Amidst the chaos of a contested election, only 20% of shareholders voted to approve the pay package and 80% voted against. This is an extraordinary result.  Former CEO Wynn received a large bonus payout and increased compensation generally in 2017. The compensation committee made some changes to Matthew Maddox’s grant – which many shareholders felt to be excessively large --  adding some performance vesting requirements to what had been a largely time-based grant but did not disclose the requirements.

Mattel has one of the largest ratios CEO to median working pay ratios: 4,987 to 1. Margo Georgiadis TDC for 2017 was $31.3 million. Georgiadis’s departure will mean that a significant portion of the TDC could be forfeited, but it was still too much for shareholders to accept: 54.2% of shareholders voted against.

Ameriprise has shown up on our overpaid list multiple years for its general level of excess, which included churning of options grants and I wrote about it earlier this year. It received one of the lowest votes with 74.7% against, and only 25.3% of votes cast in support. Shareholders had clearly had enough of the board’s exercise of discretion.

Jefferies Financial’s pay package squeezed through with an official pass with 51.2% support. Shareholders were dissatisfied In particular we have concerns over the sheer size of awards to the CEO, despite poor TSR performance.

While the proposal at Humana didn’t quite fail, it received a substantial level of opposition of 33.6 percent. As I detailed in a blog post earlier this year Human awarded performance shares even though the requirements had not been met. The changing goal posts was a bold disconnect of pay for performance, and 33.6% of shareholders voted against the package.  

Chesapeake Energy has had failed pay votes twice in the past and had a third this year with support of only 45.2 percent and opposition of 54.8 percent. Despite the performance struggles of the company the CEO’s total compensation for 2017 was $14.9 million.



Rosanna Weaver