Stockholder Proposal – Proxy Voting Practices Regarding Executive Compensation

Stockholder Proposal – Proxy Voting Practices Regarding Executive Compensation

The Stephen M. Silberstein Revocable Trust (the “Proponent”), 29 Eucalyptus Road, Belvedere, CA 94920, the holder of 582 shares of common stock (according to information provided to BlackRock by the Proponent), has advised us that it intends to introduce the following resolution:

Whereas: BlackRock, like all investment managers, is responsible for voting proxies of companies in its portfolios. It has a fiduciary responsibility (or duty) to vote proxies in a responsible manner, which includes ensuring executive pay is sufficiently tied to performance and discourages excessive and unwarranted CEO pay.

From July 1, 2014 through June 30, 2015, BlackRock approved, with its “Say on Pay” proxy votes, 99 percent of CEO pay packages in the S&P 500 companies. This level of support was higher than that of other investment managers; the average approval rating of 118 of these managers was 90 percent.

We find BlackRock’s voting record inconsistent with evidence on long term performance. BlackRock’s publication “Our Approach to Executive Compensation” states that it will oppose advisory votes in specific cases, including when: “We determine that compensation is excessive relative to peers without appropriate rationale or explanation, including the appropriateness of the company’s selected peers.”

As noted above, the company has voted in favor of most executive compensation advisory votes (Say on Pay proposals). Yet a report by the As You Sow Foundation, The 100 Most Overpaid CEOS, shows that when viewed over the long term, growth in executive compensation of S&P 500 companies, has generally outpaced performance.

Numerous academic studies, for example Lucien Bebchuck’s “Pay Without Performance”, have shown a history of growing executive pay disconnected from company performance. Even when companies purport to link performance, in reality they often do not. For example, some analysts point out that company performance is frequently determined by forces outside the executives’ control. Other analyses have highlighted weak performance targets, for example revenue growth merely equal to the inflation rate.

Resolved: Shareowners request that the Board of Directors issue a report to shareholders by December 2016, at reasonable cost and omitting proprietary information, which evaluates options for bringing its voting practices in line with its stated principle of linking executive compensation and performance, including adopting changes to proxy voting guidelines, adopting best practices of other asset managers and independent rating agencies, and including a broader range of research sources and principles for interpreting compensation data. Such report should assess whether and how the proposed changes would advance the interests of its clients and shareholders.

The Board of Directors Statement in Opposition

The Board of Directors believes that the actions requested by the Proponent are unnecessary and not in the best interests of our stockholders and unanimously recommends that you vote “AGAINST” this proposal for the following reasons:

BlackRock’s proxy voting decisions are made by a professional, independent team within the BlackRock investment function.

As a fiduciary to its clients, BlackRock has a duty to act in their best interests, including protecting and enhancing the value of their assets. Consistent with these duties, BlackRock has established a highly-regarded Investment Stewardship team (the “Stewardship Team”), comprised of over 20 corporate governance professionals, who work as part of BlackRock’s investment function to deliver value to BlackRock’s clients. The Stewardship Team undertakes proxy voting as its broadest form of engagement. Every year the Stewardship Team votes globally at more than 15,000 stockholder meetings based on a set of voting guidelines that serve as a benchmark against which it assesses a company’s overall approach to corporate governance.

The Stewardship Team serves an independent function. Reporting and oversight structures have been put in place at BlackRock to ensure that the work of the Stewardship Team is not influenced by BlackRock’s commercial interests and that votes are cast only in the long-term economic interests of clients based on the professional judgment of the Stewardship Team. We are concerned that the stockholder proposal, if implemented, would impose undue influence on our Stewardship Team by our Board of Directors.

BlackRock’s Stewardship Team’s voting guidelines provide a detailed description of its approach to analyzing and assessing compensation policies and outcomes and are updated regularly to ensure they continue to reflect governance practices that protect clients.

The Stewardship Team’s voting guidelines, voting record and engagement reports, are published on the BlackRock website at under the headings “About Us / Investment Stewardship” to provide companies, clients and others with an indication of the corporate governance matters of most importance to the Stewardship Team and how it might vote on key items on the ballot for stockholder meetings. On an annual basis, the Stewardship Team reviews its proxy voting policies in light of corporate governance and proxy voting trends and its experience engaging with companies to ensure its policies continue to reflect governance practices that protect the economic interests of our clients. Periodically, the Stewardship Team benchmarks its voting guidelines against those of peers and proxy advisors to check relevance, understand relative positioning, and identify market developments. Engagement is at the core of the Stewardship Team’s function and is viewed by the Stewardship Team as the most effective method of building mutual understanding with a company’s management to better inform the Stewardship Team’s voting decisions and engagement strategies.

The Stewardship Team has adopted policies that reflect its approach to engagement and voting on matters relating to executive compensation. The Stewardship Team’s publication “Our Approach to Executive Compensation”, which is available at under the headings “About Us / Investment Stewardship / Guidelines, Reports and Position Papers”, describes in significant detail the Stewardship Team’s approach. As noted in the publication, the Stewardship Team expects companies to set out a compensation policy that reflects the strategic objectives of the company and links rewards to executives with those to stockholders over time. The publication does not set forth a prescriptive position on structure, performance metrics or level of payouts. When the Stewardship Team has concerns about a company’s compensation policies or practices, it will generally first engage with the management or the board in order to explain the Stewardship Team’s concerns and encourage change rather than vote against compensation. If management should choose not to engage, or should the Stewardship Team consider management’s explanations on compensation outcomes unacceptable, the Stewardship Team will consider voting against compensation and against the re-election of the compensation committee members. The publication and the voting guidelines do not state that the Stewardship Team will vote against compensation policies in all instances when the Stewardship Team determines that compensation is excessive as the Proponent’s proposal suggests, nor is that the Stewardship Team’s approach to optimizing its engagement efforts.

We do not believe that additional reporting on the Stewardship Team’s approach to compensation policies is warranted or would add value to our stockholders’ understanding of the Stewardship Team’s approach to compensation. We are also concerned that the stockholder proposal, if implemented, would place undue emphasis on the voting record of the Stewardship Team and jeopardize the Stewardship Team’s ability to engage with the management of companies and exercise their professional discretion on behalf of clients. Moreover, introducing the proposed level of intrusive oversight by BlackRock’s Board of Directors would place undue influence on the Stewardship Team and threaten the independence of its function.

For the reasons stated above, the Board of Directors unanimously recommends that you vote “AGAINST” the stockholder proposal.

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