Proxy advisory firm Institutional Shareholder Services (known as ISS; owned by publicly-traded MSCI), had initially advised a vote against General Electric’s (NYSE:GE) advisory (i.e. non-binding) vote on executive compensation. In an April 6 report, ISS reportedly said, “there is a misalignment between long-term company performance and CEO pay.” GE took offense and then the offensive, claiming that ISS mistakenly attributed increases in accumulated pension values.
GE also pleaded with select shareowners to disregard ISS and vote in its favor. Subsequently, GE filed an amended proxy statement declaring CEO Jeff Immelt would have to meet some hurdles (of mere mediocrity, in one case) in order to earn his stock options. Hold your applause. I take offense that ISS fell for the bait and switched its advice to support GE’s executive compensation practices.
GE’s pension value argument and amended proxy for Immelt are smokescreens, obscuring the fact that executives, not just the CEO, are overpaid — and not just in cash salary terms. Multi-million dollar cash bonuses were actually paid to GE’s named executive officers (excluding Immelt) ... business-as-usual during and after the 2008 financial crisis, despite precipitous declines in stock price and dividend payments, neither of which are anywhere near pre-crash levels at present.
In addition, these same executives get millions of dollars of stock options on the cheap (most recently they effectively engaged in dubious actions not much different than a repricing scheme — see discussion under “Wrong No. II”), get other perquisites that the average employee has to pay for out-of-pocket after-tax with what little they may have left over each month; all the while, accumulated pension values for GE’s top five named executive officers range each from $12 million to $37 million.
There's only until the end of Monday, April 25 to vote GE’s proxy electronically. Its Annual Meeting is Wednesday, the 27th, in Salt Lake City. It seems that many individual shareholders who take the time to read their proxy understand that a vote “against” executive compensation is a no-brainer.
That’s not the case for institutional investors, no shortage of which rely upon the services of advisors such as ISS. Even worse are those that vote strictly in line with management, whether deliberately (for business reasons) or out of apathy or laziness. All of this poses a serious problem, since so many votes are held in the hands of institutions.
I am hopeful that my alacrity in reporting this seemingly unsexy but crucial matter of proxy voting will compel more to read their proxies and vote, not only for GE but for all companies. Outside of director elections, votes may be advisory (i.e. non-binding), but shareholders and fiduciaries cannot simply remain passive enablers.
In closing, I share with readers again a passage from Graham & Dodd’s classic, Security Analysis:
Sound investment in common stocks requires sound attitudes and actions by stockholders. The intelligent choice of securities is, of course, the major factor in successful investment. But if the stockholder is to regard himself as a continuing part-owner of the business in which he has placed his money, he must be ready at times to act like a true owner and to make the decisions associated with ownership. If he wants his interests fully protected he must be willing to do something of his own to protect them. This requires a moderate amount of initiative and judgement. It is not beyond the competence of American investors, especially if they are counseled in these matters by agencies in which they have confidence.
We may lack “agencies in which we have confidence” for counsel, but we all have the “competence” or the ability to read -- and have some common sense and a heart, at the very least. The game of exploitation of the many by the interlocking privileged few in corporate America, politics, and special interest groups has gone on for too long.
I won’t be surprised if the votes against executive compensation at GE are relatively few, but I will be saddened that the imperfect say-on-pay vote afforded to shareowners will have been used to further enable executives and the board to look after themselves, while grossly shortchanging GE's own employees, retirees, shareowners, fellow citizens, and the environment.
Disclosure: The author is a longtime shareowner of GE.