Home Depot Shareholder Proposal
This morning I presented a shareholder proposal at Home Depot. Below is the text of my proposal. I note that because I was only able to speak for three minutes I was not able to share all of this at the meeting. I added below some items that appeared in the proxy statement and additional background material.
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Good morning. My name is Rosanna Weaver.
I work for As You Sow as part of an initiative focusing on executive compensation and income inequality. As You Sow, founded in 1992, works to harness shareholder power to create lasting change that benefits people, planet, and profit. The bottom line for our organization is that we believe that different and better choices need to be made on many levels for a sustainable future that benefits shareholders over the long term. I’m presenting this proposal on behalf of multiple shareholders, including The Lynne M Gerber Traditional Beneficial IRA, that co-sponsored this proposal.
Proposal 6 calls on the Compensation Committee to adopt a policy requiring senior executives to retain a significant percentage of shares acquired through equity compensation programs for a significant period following their termination. The policy only applies to future grants.
We believe that a CEO’s stake in a company should grow larger over the time of their employment. Such increasing growth increases alignment w shareholders. Requiring senior executives to hold a significant portion of shares obtained through compensation plans after the termination of employment is an evolving best practice. For example, CalPERS recently updated its Governance and Sustainability Principles to include language suggesting that equity compensation earned by executives should be held for a minimum of two years after they retire or separate from the company.
Excessive awards of equity – particularly when they not accompanied by significant retention policies -- can encourage an over-emphasis on short-term stock price, including an emphasis on doing stock buybacks that may not be the best use of capital for the company. The Washington Post, in an article entitled, “Company insiders are selling stock during buyback programs and making additional profits when stock prices jump. And it’s legal” identified Menear as one of more than 50 executives who sold during company buyback programs. According to the Post, “[i]n a 27-day period that included the dates Menear and Tome sold, as Home Depot later reported to the SEC, it purchased $96.2 million of its stock, adding to demand for the stock. Public filings do not show – and companies are not obliged to tell – whether the company was buying on the exact days its executives sold.”
I want to tell you why we selected Home Depot as the place to file this proposal. Last year we reviewed S&P 500 companies with the highest option exercises in 2018. We then looked at multiple years of those companies’ proxy statements, poring over both the option exercises and Beneficial Ownership tables to determine if executives with large option exercises reinvested in the company. Most CEOs did so.
We contacted several companies where ownership did not grow proportionally including Home Depot. We had productive conversations on the topic with representatives, and one company adopted a policy as a result of our discussions. In its proxy statement Capital One Financial’s stated: “Beginning in 2020, the CEO and all other NEOs will be required to continue to hold 50% of their Stock Ownership Requirement for one year following termination, retirement or ceasing to serve as an executive officer, except in case of termination by death, disability, or in connection with a change of control. The Committee and the Independent Directors believe that these changes in stock ownership requirements will further increase the alignment of CEO and all other NEO compensation with stockholder interests.”
At Home Depot, Craig Menear realized a value of $35.6 million dollars through option exercises in 2018 and $29 million dollars in 2017. In 2019 he realized an additional value of $19.8 million. Menear did not invest a significant portion of either these exercises or shares received through vesting into company stock.
Specifically, in March 2017, Menear owned 847,987 shares of Home Depot stock. Over the ensuing three years, he exercised over 575,000 shares. Additionally, he acquired more than 160,000 shares through vesting. Yet by March 2020, Menear owned 893,384 shares. His ownership increased by less than 50,000 shares despite the massive exercises and vested equity he received.
The annual total compensation of Home Depot’s median-paid associate was $22,652 last year. The disclosed pay ratio was 481:1. I did another calculation. I looked only at the options cashed – not salary, bonus or even shares acquired through vesting. In the past three years, Menear has cashed options equal to the combined 2019 earnings of 3,487 of Home Depot’s median employees. I personally find that offensive.
The company recommends you vote against this policy for contrasting reasons.
On the one hand the company contends that its current policy – in terms of vesting period requirements -- is already more stringent than “many of our peers.”
On the other hand the company contends that adopting this proposal – despite the broad discretion for the board included -- “would put us at risk from a competitive standpoint in attracting top talent.” I wonder what the company means by top talent. I would assume you want to hire people who believe in and are committed to the company and its customers. If a potential senior executive turned down a position at Home Depot because of this policy – I would consider that a red flag. Talent and greed are not the same thing.
The company reported that 26% of shareholders supported this proposal.