Proxy Blog

The Kroger Co. 

May 21, 2019

The annual proxy for this supermarket chain had the following proposals: 

  1. Proforma proposals on directors, appointment of auditors, and “say-on-pay” advisory vote 
  2. Board proposals on long-term incentive plan and permitting board amendments 
  3. Shareholder proposals on unrecyclable packaging/private label brands and independent chairman 

Magni voted as follows: 

  1. For and against proforma proposals.
    -For directors  The board has a majority of independent directors and some have CEO/CFO experience with other companies. The compensation of directors is disclosed with a meaningful portion in equity where the equity has restrictions to align director incentives with long-term value creation. The compensation levels are set using a benchmarking process.
    -For auditors – There appear to be no controversies with the financial statements of the company.
    -Against say-on-pay”  The proxy materials disclosed shareholder engagement activities which included discussions of executive compensation. The peer group was listed, however the disclosures regarding the criteria were superficial. The minimal comparison of the company to the peer group was not informative. The disclosure on how the peer group was used did not address important issues. Collectively the peer group disclosures did not provide transparency into the governance of executive compensation. 
  2. For and against board proposals.
    -For Long-term incentive plan – Long-term incentive plans are good tools for aligning management of a company with shareholder interests. The amendments to the existing plan are relatively minor and the changes are consistent with good governance.
    -Against authority to amend – Recent Ohio legislation allows companies to amend bylaws that enable company boards to make “minor” amendments without shareholder approval. The board wants this authority. The proposal does not provide examples of amendments that would be enacted without shareholder approval. Approving such a proposal is risky as it is unclear what limits exist on board authority. It is safer to vote against this proposal in order to prevent adverse unintended consequences. 
  3. For shareholder proposals.
    -Unrecyclable packaging/private label brands  Magni is supportive of environmental efforts, and such efforts are part of good governance. Generally, Magni will support these sorts of proposals, especially when the company has not been a leader among its competitors on the topicThe company response mainly consisted of plans instead of accomplishments, while not addressing the statements in the proposal regarding deficiencies versus competitors.
    -Independent chairman – An independent board is an important part of good governance. An independent chairman can be part of an independent board, though there will be cases where an independent chairman does not make sense. In the case of this company, there are no material mitigating factors that would cause Magni to vote against an independent chairman.