Thursday, June 9, 2016
by: Rosemary Lally and Kylund Arnold
Section: CII Governance Alert
Throughout the 2016 proxy season, the Governance Alert provides brief write ups of upcoming annual meetings at which proposals filed by CII members will come to votes.
Abercrombie & Fitch—The Teamster Affiliates Pension Plan’s proposal asks the board to adopt a policy stating that in the event of a change in control, there will be no acceleration of vesting of equity awards granted to senior executives, although unvested awards could vest on a partial pro rata basis up to the time of the executive’s termination. The proponent believes that given CEO Michael Jefferies impending retirement, this is an opportune time to adopt the policy. The current policy allows for the acceleration of unearned equity, and while severance may be appropriate, the proponent contends, the company’s current policy may permit windfall awards unrelated to an executive’s performance.
The board opposes this proposal, arguing that the company would be placed at a competitive disadvantage to its industry peers. The board says this proposal would result in forfeiture of a significant portion of compensation simply for pursuing and executing a transaction aligned with company and shareholder interests. The board also argues that the implementation of this policy would “make it more difficult for the company to retain executives during a potential change of control, which could make it difficult for the potential transaction to progress in a manner that would serve the best interests of the company’s shareholders.”
A similar proposal received 36 percent of the votes cast in 2015, 44 percent in 2014 and 23 percent in 2013.
T-Mobile—Three proposals submitted by CII members are coming to votes at the company’s annual meeting.
Marco Consulting Group’s proposal asks the company’s board to adopt and present for shareholder approval a proxy access bylaw that would allow shareholders owning 3 percent or more of the company's stock for at least three years to be able to have their board nominees, comprising no more than 25 percent of the board seats, appear on the company's proxy ballot. The proponent cites a CFA Institute study that found proxy access would benefit both the markets and corporate boardrooms with little cost or disruption. Marco also argues that proxy access improves shareholder rights.
The company argues that proxy access would interfere with the governance rights that its controlling shareholder, Deutsche Telekom, has under the certificate of incorporation. Among these rights, Deutsche Telekom may designate a number of nominees for election to the board in proportion to its share ownership percentage.
Last year a similar proposal received the support of 18 percent of the votes cast.
The AFL-CIO Reserve Fund’s proposal asks the board to adopt a policy stating that in the event of a change in control, there will be no acceleration of vesting of any equity award granted to any senior executive, although unvested awards could vest on a partial pro rata basis up to the time of the executive’s termination. The proponent expresses concern that under the current arrangement executives could receive windfall rewards that have nothing to do with their performance. The fund also points out that if the company’s board had accelerated equity awards in conjunction with a change of control in 2014, the CEO had $31 million in unvested, time-based and performance-based restricted stock units subject to acceleration.
In opposing the proposal, the board points out that neither of its equity plans provides for the automatic accelerated vesting of awards in connection with a change in control. It also argues that accelerated vesting in appropriate circumstances permits management to remain objective and focused on protecting shareholder rights and maximizing shareholder value during a potential change in control event. In addition, it says the double trigger provision in its equity awards ensures that executives are not distracted by a potential loss of employment.
The Amalgamated Bank’s LongView Broad Market 3000 Index Fund’s proposal asks the company’s board to amend its clawback policy to provide that the compensation committee will determine whether to seek recoupment of incentive pay granted or awarded to executives if there has been conduct resulting in a violation of law or T-Mobile policy that causes significant financial or reputational harm to T-Mobile. The policy also would require the company to disclose the circumstances of any recoupment and of any decision not to pursue recoupment in the situations mentioned. The proponent points out that the company’s clawback policy only provides for recoupment for accounting and financial reporting noncompliance. The proponent also says recoupment policies hold senior executives accountable for proper risk taking.
In opposing the proposal, the board says its current clawback policy is robust and reflects market practice. It also argues that the proposal’s standards are vague and imprecise and the proposal’s disclosure requirements could prevent the board from acting in the company’s best interests.
PharMerica—The UAW Retiree Medical Benefits Trust’s proposal requests that the company adopt a proxy access bylaw that would allow shareholders owning 3 percent or more of the company's stock for at least three years to be able to have their board nominees, comprising no more than 25 percent of the board seats, appear on the company's proxy ballot. The proponent says proxy access is a fundamental shareholder right that will make directors more accountable and improve shareholder value.
In opposing the proposal, the board says proxy access could allow shareholders to place unqualified director candidates on the ballot, and is unnecessary because the company already has strong governance practices in place including opportunities for shareholders to bring potential nominees to the board’s attention.