Danaher

Proxy issued:                     March 27, 2015

Annual meeting:              May 7, 2015

Key points:

1) Former CEO paid  the exact same amount he was paid before he retired.

2) Board will deem shares vested, presumably including performance shares, undermining any performance linkage.

3) Excessive and unusual perquisites also include tax gross-ups.

A very quick look at CEO pay at Danaher may make it appear at first that CEO pay is down with appointment of the new CEO, since Thomas Joyce Jr. total disclosed compensation is “only” $8.4 million. However, Joyce only held the position for 3 months of 2014, and a look at combined packages suggests otherwise. Departing CEO Lawrence Culp received $13.7.  Ultimately, though database figures might not show it, shareholders at Danaher paid more in CEO compensation this year than last.

Actions taken by the board both in the “transition” package for departing CEO and the perquisites for the incoming CEO raise further concerns.  H. Lawrence Culp retired from the board and his positions as President and CEO in September 2014, but under a “transition agreement” through March 1, 2016 he will “assist in the Company’s leadership transition.” For that position, Culp’s “annual base salary and health and welfare benefits during the continued employment period continue unchanged.

Think about that. He’s retired, and he’s being paid by shareholders the exact same amount he was paid before he retired.

Further, in March 2016, the board has guaranteed that 40% of the RSUs and stock options granted to Culp on February 21, 2013 will be deemed vested.  This appears to include performance-based shares. In the prior proxy statement the board bragged that, “the performance-based vesting criteria we apply to RSUs tie realization of the award more directly to operational performance under management’s control.” Performance-based vesting sounds shareholder-friendly in theory, but too often board has the ability to arbitrarily “deem” such shares vested, fundamentally undermining any linkage that may have existed on paper.

The agreement also provided for a bonus, Culp “received an amount equal to his average bonus payments for 2011-2013 (capped at 250% of his 2014 salary) pro-rated based on the number of days in 2014 he served as President and CEO.” Thus the $2 million bonus payment has absolutely no connection to 2014, and because it is not performance-based the company loses a tax deduction on it as well. Culp also received generous perquisites in his last year as CEO, including: “$94,563 in tax preparation and professional service.”

Joyce who had been an executive vice-president at the company had a Proprietary Interest Agreement. When he became President and CEO in September 2014, the board members sweetened his potential post termination package. Of greater concern are the details around the $473,244 in relocation costs, which included “costs relating to the sale of his former residence and purchase of a new residence, temporary housing, house-hunting trips and moving expenses.” The board approved a widely discredited and nearly obsolete practice: a gross-up in which shareholders pay not only for a perquisite, but for the taxes on that perquisite.  In this case, according to the proxy statement, “reimbursement in the amount of $100,940 for the income taxes incurred by Mr. Joyce with respect to such relocation perquisites.”