Study Proxies Prior to Casting Ballots (Rebecca Garner Commentary)

At Garrison Asset Management, I vote all proxies. I read the proxy statements, check with the equity team, check news wires and try to use some common sense. But sometimes the obvious becomes cloudy, the cloudy becomes obvious and you shake your head and say enough is enough.
The types of plans and the types of compensation awards are to the point of ridiculous. After voting 25 or 30 proxies, I started making notes regarding these issues. I found 21 different types of plans and 32 different awards given to various constituencies.
A list of the Plans included: Executive Compensation Plan, Non-Employee Director Plan, Service Provider Plan, Certificate of Extra Compensation Program, Variable Compensation Plan, Long Range Incentive Plan, Long Term Performance Plan, Stock Option Exchange Program, Inducement Equity Grant Plan and 12 others.
A list of the awards included: Bonus Shares, Deferred Shares, Equity Awards, Fixed Annual Award, Incentive Stock Options, Non Qualified Stock Options, Non Statutory Stock Options, Option Grants, Performance Bonuses, Performance Shares, Performance Units, Reload Option Rights, Restricted Shares, Stock Appreciation Rights, Stock Options, Stock Units and 17 others.
What are the chances that the boards of directors reviewing and approving or disapproving these plans and awards know what they are voting on?
I would suggest the only people who have a good understanding of what all these plans and awards entail are the consultants who have conveniently sweet-talked these various boards into a plan just for them – Service Provider Plan.
Why in the world are these boards approving an award plan for service providers? It defies logic to me.
It seems to me that a good way to attract and retain the services of a consultant is to just keep hiring them as their contract comes up. Why would a board create a plan for these people? If they are so important, just hire them!
I was also amazed at some of the language accompanying the description of these awards.
Some quotes are: “…the Committee has the sole discretion to select the employees and consultants who will receive these awards,”- Advanced Micro Devices; “The purpose of the 2007 Plan is to attract and retain the services of employees, consultants, and non-employee directors” – Xilinx; “Compensation Committee…discretion and authority…interpret the plan; prescribe, amend and rescind rules and regulations retarding the plan…” – Schering Plough; “…interpret all provisions…to adopt, amend and rescind rules and regulations”- Lowe’s; and “the Board of Directors has the power to terminate the 2006 Incentive Plan in its entirety at any time.” – Corning Incorporated.
Lastly these proxies also bring to light the over-commitment by some board members. Just how effective can a board member be if he or she serves on too many boards?
Not that they are the biggest offenders by any stretch, but only by virtue of them being in my back yard do I use Wal-Mart as an example because I have two directors from Wal-Mart on my long watch list for commitment issues: James I. Cash and Roland A. Hernandez.
According to the Wal-Mart proxy statement, Mr. Cash serves on five boards: Chubb Corp, General Electric, Phase Forward, Microsoft and Wal-Mart. Mr. Hernandez serves on 5 boards as well: MGM Mirage, Lehman Brothers Holdings, The Ryland Group, Vail Resorts and Wal-Mart.
Without going into stock/stock options received via their different plans for outside directors, the back of the envelope annual cash amounts received by Mr. Cash and Mr. Hernandez for all their directorships is $270,000 and $375,000, respectively, plus all board-related expenses.
These compensation and award issues are highly complicated and unique to every company.
I doubt that each of these directors is conversant on all these issues at five different companies in five different industries. And how independent are you when you are getting paid this much money, not to mention stock?
So please don’t throw your proxy statements in the trash – read them.
It is important that you vote your common sense on these issues.
(Rebecca H. Garner is the president and chief investment officer at Garrision Asset Management of Fayetteville. She can be reached via e-mail at [email protected].)