Procter & Gamble

Annual meeting: October 13, 2015

In July, Procter and Gamble (PG) announced that long-time executive David Taylor would take the position of CEO upon the retirement of A. J. Lafley on November 1, 2015.  As noted in The Wall Street Journal, this marks the second time in six years that PG “directors are replacing Chief Executive A.G. Lafley with an insider whom he groomed.” Unlike his prior departure, this time Lafley is staying on as a highly paid executive chairman with a salary of $1.25 million, a bonus target of 150% of that amount.

Lafley first served as CEO at PG from 2000 to 2009, and he remained chairman for six months as Robert McDonald served as CEO.

When Lafley returned to the job in 2013, it was with an annual salary of $2,000,000.  His primary residence remained in Florida as he travelled between his home and the Cincinnati headquarters by corporate jet. Shareholders footed the bill for more than half a million for corporate jet expenses in 2015 alone.

During the period between his two stints as PG CEO Lafley spent some time as a consultant and wrote a column for the Harvard Business Review entitled, “Executive Pay: Time for CEOs to Take a Stand” in May 2010. He laid out a number of principles with the goal of “restoring public trust in our system of democratic capitalism”.

Yet, putting into practice the ideals he espoused was at best inconsistent. The company did maintain the equity focus Lafley recommended. But Lafley had acknowledged in his column that, “In some cases a CEO may have accumulated so much equity that additional grants provide little incremental motivation. At that point the CEO should ask the compensation committee to put those grants back into the pool for other employees.”

The year Lafley returned he received a stock award worth $12.2 million despite the fact that his beneficial ownership at the time was over 2.3 million shares.

Lafley also wrote about the need for equity holding requirements, noting that, “This sets an example by affirming the company’s long-term values and culture for other top executives.” While Lafley maintains what could be a “meaningful portion” of his equity, his total ownership of P&G stock is less in 2015 than it was in 2005. Does the fact that Lafley’s direct holdings, as well as trustee and family holdings, have declined in the past year also send a message?  We think it might, and expect many shareholders to vote against the generous package at PG.