Wednesday, March 02, 2016

GE Unsuccessful in Effort to Omit Shareholder Proposal on Performance-Based Pay

By Jacquelyn Lumb

General Electric was unsuccessful in its attempt to omit from its proxy materials a shareholder proposal asking the board to adopt a policy that a portion of future stock option grants to senior executives be performance-based. GE asked the staff to concur with its view that the proposal violated the 500-word limitation because it included an image of a graph, was vague and indefinite, was beyond the company’s authority to implement, and was an attempt to manipulate and abuse the shareholder proposal process to achieve personal ends.

The proposal. The proponent’s supporting statement said that GE currently uses certain performance-based parameters in awarding stock options, but they are not premium priced. The statement refers to the pay of company CEOs which increased while the value of the company’s stock declined. His proposal would tie compensation more closely to the company’s performance, according to the supporting statement.

Argument over image. GE maintained that allowing the inclusion of an image in a shareholder proposal would circumvent the 500-word limitation. Rule 14a-8(d) only allows words and does not authorize the inclusion of images in shareholder proposals and supporting documents, according to GE. The proponent instructed that the image was to accompany the proposal which, in GE’s view, would violate Rule 304(c) of Regulation S-T.

In addition, GE said the image is not text searchable and the proposal does not present the same information contained in the image as searchable text or in a searchable table within the filing. GE said the proposal presented a test case for whether shareholders could circumvent Rule 14a-8(d) by submitting an image for inclusion in the proxy statement.

Vague language. The proposal was also vague and misleading, GE said, because it described specific standards for performance-based stock options, but then included vague, ambiguous, and conflicting descriptions about how the standards would be satisfied. The company would be unable to determine with reasonable certainty what actions or measures were required, according to GE. The company also said that it was beyond its power to structure and grant stock options based on performance factors that were not defined and the proposal gave no indication of how the factors should be defined.

Personal grievance. In addition, GE claimed that the proponent had coordinated with other individuals to assert his personal grievance and advance his personal objectives, which were not in the common interest of the other shareholders. The proponent previously worked for GE. After separating from the company, he filed a complaint against the company and his former supervisor in which he sought monetary and other relief. GE said the proposals submitted by the proponent and the individuals with whom he coordinated to submit proposals in recent years provided a platform from which he could assert his claims against the company and the supervisor during the annual meetings.

Staff position. The staff addressed each of GE’s reasons for omitting the proposal and did not concur with any of them. The image was not the type of information that users must be able to search or download, according to the staff, and the proposal was not so vague or indefinite that neither the shareholders voting on the proposal, nor the company in implementing it, would be able to determine with any reasonable certainty what actions were required.

Further, the staff did not agree that the proposal related to the redress of a personal claim or grievance against the company, or that the proposal would benefit the proponent but not the other shareholders at large. Finally, the staff did not find conclusive GE’s argument that it lacked the power or authority to implement the proposal. Accordingly, the staff advised that GE could not exclude the proposal based on any of the grounds for which it sought the omission.