It's a very exciting time of year for investors: tax season, annual report season, and most thrillingly, proxy voting season! Believe it or not, it's worth your time to sift through the mail and uncover your ballot (or cast your vote online, if you've gone paperless). That one tiny vote of yours might help change corporate America's status quo for the better.
Turbocharge your vote
If you own your shares through a brokerage account, and fail to cast your proxy vote, most brokerages will assume by default that you're siding with the company's position. The SEC, following complaints that this system unfairly favored management, launched an investigation. In its wake, you'll be happy to know that several brokerages have started a new, fairer tradition.
According to the proxy solicitation firm Okapi Partners, these brokerages now cast the votes from shareholders in equal proportion to the wishes of the shareholders who actually did vote. If 50% of shareholders in Scruffy's Chicken Shack (Ticker: BUKBUK) vote on the question of the CEO's compensation package, and 80% oppose it, the brokerage will mirror that percentage in the uncast votes. Brokers that have switched to this proportional voting system include Charles Schwab (NASDAQ:SCHW), Morgan Stanley (NYSE:MS), and Goldman Sachs (NYSE:GS).
Most of us own so few shares that we tend to feel our votes are meaningless. When you compare our modest holdings against, say, 500 million shares outstanding at Nike (NYSE:NKE) -- or 9 billion Microsoft (NASDAQ:MSFT) shares -- it's easy to see why many people don't bother voting.
But now your vote will also be reflected in the votes cast on nonvoters' behalf. That means your vote just got a lot more powerful.
The big guns
Of course, even with our turbocharged votes, we're still small potatoes compared to institutional investors. These powerful voting blocs hold some 67% of Disney (NYSE:DIS) shares, 80% for Google (NASDAQ:GOOG), and a whopping 91% for Nike.
Still, these big guns can also vote responsibly, and they're arguably under even greater pressure to do so. At ProxyDemocracy and other websites, you can look up how your mutual funds have voted; this accountability may help keep them honest. In addition, there's simply more interest in and support for many issues facing companies today. Outlandish executive compensation has many Americans, investors and non-investors alike, seething. They want to see shareholders vote to support pay for performance -- and many large institutions are listening.
Institutions are often guided by the recommendations of a handful of firms that study proxy materials, including the folks at RiskMetrics. In its latest report, RiskMetrics lists its general policies, including the following compensation-related stances:
RMG will generally recommend to vote AGAINST plans and/or WITHHOLD votes from the Compensation Committee members if:
- There is a pay for performance disconnect between the CEO’s pay and company’s stock performance;
- The main source of the pay increase (over half) is equity-based; and
- The CEO is a participant of the equity proposal.
For example, RiskMetrics doesn't want to see a CEO's total compensation (including stock and non-stock bonuses and incentives) rising disproportionately when a company's one-year and three-year shareholder returns are below median levels.
Your vote matters more than ever
Overall, things are looking up in proxyland. Our individual votes seem to be growing in power, even as institutions become more inclined to support shareholder-friendly positions. The next time you receive a proxy ballot, don't throw away your chance to show your investments who they're really working for.
Foolishness by proxy:
