XPO Logistics Inc. (NYSE:XPO) shareholders on Tuesday voted down the company’s nonbinding proposal that would have granted $80 million in long-term compensation for Chairman and CEO Brad Jacobs, an amount that critics, notably organized labor, said was excessive.
XPO is not legally obligated to abide by the outcome. In a statement Tuesday, an XPO spokesman said that the “board will continue to take shareholder feedback into consideration as it evaluates the company’s compensation program in the future.” The statement added that it is committed to “maintaining a pay-for-performance culture based on achieving ambitious goals and delivering shareholder value.”
The Teamsters union, which has fought against XPO’s executive compensation levels for years as part of a long-running battle to organize its drivers and warehouse workers, mentioned the shareholder vote in its statement but said nothing more about it. XPO employs 210 Teamsters members at six U.S. LTL locations, five of which are negotiating with the company for their first-ever contracts. No unionized XPO employee currently works under a contract. About 35,000 XPO employees are legally eligible to join a union, according to company data.
Under the “Say on Pay” provisions of the Dodd-Frank Act of 2010, a company puts forth a mandatory, nonbinding shareholder resolution which asks investors to approve compensation packages for the company’s “named executive officers”: The CEO, CFO and the top three other most highly compensated officers. According to Teamsters General Secretary-Treasurer Ken Hall, more than 30% of XPO shareholders have rejected the company’s compensation proposals in three of the past four years.
In an April letter to XPO shareholders, Hall said the current proposal would have awarded Jacobs, who is also the company’s founder, the equivalent of $80 million in long-term incentives. In addition, an abbreviated vesting schedule could mean that Jacobs could receive half of the award in two separate tranches just 18 months after it is granted, Hall wrote.
Jacobs has received tens of millions of dollars in various forms of compensation for a number of years. The magnitude of his compensation is amplified by the fact that, should the spinoff of XPO’s logistics business take effect as planned during the second half of 2021, Jacobs will be heading a much smaller company, Hall said. Jacobs will run XPO’s transportation business that will remain once the logistics business is spun off.
XPO said that its shareholder proxy statement ties Jacobs’ proposed compensation to the company meeting very ambitious performance metrics. XPO must achieve 120% of internal and peer-to-peer cash flow and 40 environmental, social and governance (ESG) targets for four consecutive years starting in 2020, according to the proxy. Jacobs’ award fully vests over a six-year period effective in 2020, the proxy said.
Supporters of the compensation proposal contend that XPO is very much a pay-for-performance company and generously rewards top executives for hitting very ambitious targets. As such, it does not follow narrow compensation parameters that might be favored by groups like the Teamsters, according to the company’s advocates.
The value of XPO’s shares has risen 1,554% during the past 10 years, a period that roughly parallels the company’s life span. The Teamsters, who are XPO shareholders through various pension funds, acknowledge that the shares have performed well under Jacobs’ leadership. Hall noted in his letter, however, that Jacobs’ roughly 18% equity stake has risen from $135 million to more than $2.4 billion over that 10-year period. That level of wealth accumulation effectively diminishes the need to shower Jacobs with tens of millions of dollars of additional shareholder equity to incent him to perform, Hall said.
XPO shares closed down a small fraction at $148.11 a share in a generally down day for U.S. equities.
