Company Name: DTE Energy Co.
Public Availability Date: January 29, 2007
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX 1
INQUIRY LETTER
INQUIRY LETTER
APPENDIX 2
STAFF REPLY LETTER
[INQUIRY LETTER]
December 29, 2006
VIA ELECTRONIC MAIL
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: DTE Energy Company Securities Exchange Act of 1934: Rule 14a-8(i)
Ladies and Gentlemen:
DTE Energy Company, a Michigan corporation (the "Company" or "DTE"), has
received a letter dated October 28, 2006 from James C. Harrison (the
"Proponent") sponsoring a shareholder proposal (the "Proposal") to be included
in the Company's proxy materials for its forthcoming annual meeting of
shareholders scheduled to be held on May 3, 2007. We have attached a copy of the
letter and the Proposal as Exhibit A hereto. On behalf of the Company, we
respectfully request that the staff of the Division of Corporation Finance (the
"Staff") confirm that it will not recommend any enforcement action against the
Company if it omits the Proposal from its proxy materials pursuant to (i) Rule
14a-8(i)(3) because the Proposal is impermissibly vague and indefinite in
violation of Rule 14a-9, (ii) Rule 14a-8(i)(3) because the Proposal is
materially false and misleading and (iii) Rule 14a-8(i)(10) because the Company
has already substantially implemented the Proposal.
I. The Proposal
The Proposal provides:
RESOLVED, that the shareholders of DTE Energy (the "Company") urge the Board of
Directors to adopt a policy that the Company's shareholders be given an
opportunity at each annual meeting to vote on an advisory resolution, to be
proposed by DTE management, to ratify the total compensation awarded to the
named executive officers during the preceding final year (including cash,
equity, and all other compensation), as set forth in the summary compensation
table included in the proxy statement.
The Proposal further provides:
The Proposal submitted to shareholders should make clear that the vote is
non-binding, will not affect any compensation paid or awarded to any executive
officer, and will not affect the approval of any compensation-related proposal
submitted for a vote of shareholders at the same or any other meeting of
shareholders.
II. The Proposal may be excluded under Rule 14a-8(i)(3) because the Proposal is
vague and indefinite.
Legal Standard
Rule 14-8(i)(3) permits a company to exclude a proposal if either the proposal
or the supporting statement violates the proxy rules, including Rule 14a-9,
which prohibits materially false or misleading statements in proxy soliciting
materials. The Staff has permitted registrants to use Rule 14a-8(i)(3) to
exclude proposals from the proxy statement if the proposals are determined to be
either vague and indefinite or materially false and misleading. See State Street
Corporation (March 1, 2005); International Business Machines Corporation
(February 2, 2005). The Staff has consistently taken the position that vague and
indefinite shareholder proposals are excludable under Rule 14a-8(i)(3) because
"neither the stockholders voting on the proposal, nor the company in
implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires."
Staff Legal Bulletin No. 14B (September 15, 2004); Procter & Gamble Co. (October
25, 2002); Philadelphia Electric Co. (July 30, 1992).
a. Implementation could be different from actions envisioned by shareholders
A proposal is considered vague and indefinite so as to justify exclusion where a
company and its shareholders might interpret the proposal differently, such that
"any action ultimately taken by the [c]ompany upon implementation of the
proposal could be significantly different from the actions envisioned by the
shareholders voting on the proposal." Fuqua Industries, Inc. (March 12, 1991).
In this case, while the purpose of a shareholder advisory resolution on
executive compensation is to communicate views about executive compensation,
such a method is a completely ineffective means of expressing views to the
Company's Board of Directors (the "Board"). The advisory resolution would be
merely a collective yes or no vote on total compensation for all named executive
officers ("NEO") as a group. Total compensation is comprised of annual
compensation (e.g., salary, bonus and other annual compensation) and long-term
compensation (e.g., restricted stock, options and LTIP payouts). Such a simple
vote could not reasonably be expected to provide the Company with useful
information on shareholder concerns regarding executive compensation because it
is unclear what the shareholder would be objecting to (e.g., one element of
total compensation or one NEO's total compensation) and/or what changes the
shareholder would like to make (e.g., modify annual or long-term compensation).1
Thus, any action taken by the Company as a result of the shareholder resolution
could be substantially different from any actions envisioned by the
shareholders.
The Proposal requests that shareholders be given the opportunity to vote on an
advisory resolution ratifying total compensation awarded to all of the NEOs as a
group (the "advisory resolution"). It is clear that shareholders will likely
understand the concept and procedure of voting for or against an NEO's
compensation. However, when the Proposal is read in conjunction with the
supporting statement, it is evident that action undertaken by the Company as a
result of the advisory resolution could be significantly different from the
action envisioned by the voting shareholder. The supporting statement indicates
that the advisory resolution is intended to give shareholders an "effective
means to communicate their views on executive compensation policies to
directors." However, the Company would not have the capability to interpret a
shareholder's vote or deduce anything meaningful from a negative vote. The
negative vote could convey disapproval of a variety of aspects of executive
compensation. For example, the following questions could be raised about a
negative vote:
(1) Is the shareholder expressing dissatisfaction with total compensation or
only one element of compensation, such as base salary, bonus or long-term
incentives?
(2) Does the negative vote apply to the total compensation of all named
executive officers or only to one or more specific named executive officers?
(3) Does the negative vote apply to some elements of total compensation for some
named executive officers but different elements for other named executive
officers?
(4) Is the shareholder expressing dissatisfaction not with total compensation
but with the policies that dictated one or more elements of compensation?
(5) Is the shareholder expressing dissatisfaction that total compensation is too
low for one or more specific named executive officers?
Thus, the Company would not be able to take any action from a vote on an
advisory resolution because it has no clear and specific guidance with which to
interpret such a vote.
The Proposal is not only an ineffective method of conveying to the Company
shareholder views about executive compensation, it is also misleading. The
supporting statement of the Proposal tells shareholders that their vote on
executive compensation "would give DTE shareholders an effective means to
communicate their views on executive compensation policies to directors"
(italics added) and would lead shareholders to believe that they would be
influencing the Company's policies or specific decisions regarding executive
compensation. The supporting statement further says that the annual vote "would
also provide directors with useful information" about shareholder concerns. In
reality, (i) the Company has no ability to understand the meaning of any vote
(i.e., there is no "useful information") and thus would not be in a position to
take any action to change executive compensation in accordance with the opinions
of the shareholders and (ii) the vote would be about total compensation rather
than about "policies." All the Company and the Board would know from a negative
vote is that the shareholder disapproved of something related to executive
compensation not what that something is.
A more effective way for shareholders to communicate their views on executive
compensation would be for them to communicate directly with the Board - a
mechanism that is already available to them. (See Section III below, which
discusses direct communications with the Board.) Thus, the Proposal is vague and
indefinite because the Company would not be able to determine with any
reasonable certainty what actions should be taken with respect to executive
compensation. There can be no assurance that any actions taken by the Company in
response to a negative vote would be responsive to the shareholders and, in
fact, could be significantly different from the actions intended by the
shareholders.
b. Factual Statement is Materially False or Misleading
1. The Proposal would not provide directors with "useful information" and is not
an effective method for shareholder communication about executive compensation
"policies."
The Staff has interpreted Rule 14a-8(i)(3) to permit the exclusion from
shareholder proposals of factual statements which are materially false or
misleading. Staff Legal Bulletin No. 14B (September 15, 2004). As stated above,
the supporting statement is false and misleading because it claims that the
advisory resolution will provide directors with "useful information" about
shareholder concerns over executive compensation at the Company, when in
reality, the Company will not be able to understand the meaning of a shareholder
vote. Furthermore, the supporting statement purports that the Proposal would be
an effective way for shareholders to communicate their views on executive
compensation "policies," but the vote on the advisory resolution would actually
be regarding total compensation rather than "policies."
2. The supporting statement omits material information regarding compensation
practices at other "comparable utility companies."
Under Rule 14a-9(a), the omission of a material fact necessary to make a
statement not false or misleading is tantamount to a false or misleading
statement. The Staff has found portions of supporting statements to be false and
misleading where they referenced different peer groups but omitted information
about the identification of institutions that constituted the peer groups. First
Bell Bancorp Inc. (March 3, 2000); Keystone Financial, Inc. (March 15, 1999).
In our case, the supporting statement of the Proposal references compensation of
executives at other "comparable utility companies" in an attempt to show that
the Company's executive compensation is not comparable to executive compensation
at other peer companies. However, such comparisons are misleading and contain
material omissions because they contain only selective data based on one fiscal
year 2005, do not give an accurate or complete understanding of comparable
executive compensation and focus solely on the compensation of chief executive
officers ("CEO") rather than discussing that of all named executives. For
example, the supporting statement references compensation paid by three
companies: CMS Energy ("CMS"), Allegheny Energy ("Allegheny") and American
Electric Power ("AEP") to their CEOs. The supporting statement neglects to
include certain information about these three companies that are essential to
providing shareholders with a more accurate comparison with the Company. For
example, AEP, which the supporting statement claims paid its CEO "over $1
million less" than the amount the Company paid its CEO, actually paid its CEO
about $1 million more in total annual compensation. In addition, CMS earned
about $3 billion less in total revenue than the Company and had a negative net
income for 2005. Allegheny earned about $6 billion less in total revenue and
almost $500 million less in net income than the Company in 2005. Absent
long-term compensation, the base salaries and bonuses paid by these companies
are within the same range as those paid by the Company. In fact, AEP paid a
bonus to its CEO that was about 20% higher than the bonus the Company paid to
the DTE CEO. It is evident that DTE performed better than CMS and Allegheny in
2005, therefore justifying more long-term incentive payments for the DTE CEO. In
essence, the performance-based component of the long-term incentive payments
contributed to the higher compensation of the DTE CEO. This is consistent with
creating shareholder value by tying compensation to performance. Clearly, the
supporting statement fails to provide sufficiently meaningful information for
shareholders to compare the Company's compensation practices with those of these
"comparable utility companies." This omission of material information renders
any comparison a shareholder draws from the information presented in the
supporting statement false and misleading.
The supporting statement even misstates the DTE CEO's total compensation. It
states that the DTE CEO received $5.5 million in total compensation, but
according to the Company's 2005 proxy statement, he received $5,365,793 in total
compensation, almost $135,000 less than what the Proposal claims. Even if this
figure is rounded up, his total compensation would still only be $5.4 million.
Thus, the statement that the DTE CEO "received $5.5 million in total
compensation" is false.
The supporting statement also fails to provide any information about the
compensation of NEOs other than that of the CEO, even though it broadly claims
that "senior executive compensation at [the] Company has become clearly
excessive." While the Proposal is directed toward compensation paid to NEOs, the
supporting statement focuses only on CEO compensation. However, a comparison of
NEO compensation at AEP, CMS and Allegheny reveals that DTE's total compensation
of NEOs other than the CEO falls within the range of NEO total compensation at
these companies. When comparing different aspects of NEO compensation such as
salary, bonus and long-term incentives among AEP, CMS and Allegheny, it becomes
clear that DTE's NEO compensation is comparable and that, in some cases, lower
than the other companies. Without any kind of data about NEO compensation,
shareholders do not have any means with which to evaluate whether DTE's senior
executive compensation as a whole is "clearly excessive." Shareholders may be
misled by the data about CEO compensation provided in the supporting statement
and may infer that there is a similar disparity in compensation of other NEOs,
even though DTE may be paying its other NEOs less than the amount comparable
companies are paying. The lack of any discussion about compensation of NEOs
other than the CEO is a material omission that makes it impossible for
shareholders to make a judgment about whether the Company's senior executive
compensation as a whole is "clearly excessive."
Moreover, the supporting statement does not give shareholders any means with
which to evaluate the Company's executive compensation in comparison with that
of other companies in its peer group because it does not even cite any relevant
peer group and only vaguely references "other comparable utility companies"
without any evidence or support that these companies fit within the Company's
comparative market. Shareholders cannot make a determination from this
information as to how similar or different these institutions, and their one
year performance, are from the Company. This omission of information about the
Company's peer companies is more egregious than the omissions at issue in First
Bell Bancorp Inc. and Keystone Financial, Inc., referenced above, which
identified peer groups but did not identify the companies that constituted the
peer groups. The Proposal does not identify a peer group but merely provides
information about three companies.
The Company's Organization and Compensation Committee believes the Company's
comparative market consists primarily of utilities (including utility holding
companies), broad-based energy companies, and significant non-energy companies
selected on the basis of revenues generated, financial strength, geographic area
and availability of compensation information. For example, to establish 2005
executive compensation, the Company hired an external consulting firm to conduct
a custom market analysis utilizing a 2004 study. The comparative group consisted
of 24 companies (14 energy-related and 10 non-energy companies) for this 2004
study, which was increased by a market competitive factor to establish market
data for 2005.
Once one examines information about the companies that constitute the Company's
comparative market, it becomes evident that DTE's CEO compensation is not
"clearly excessive." Other companies paid more of a base salary and bonus than
the Company. An examination of the base salary, bonus and other annual
compensation of the CEO's of other similar companies indicates that the
Company's compensation of its CEO is average, and certainly not "clearly
excessive." The Company's payment of long-term incentives is a result of its
strong economic performance and its business judgment that providing such
incentives will lead to strong performance in the future. Further, the Proposal
fails to recognize that the Company has a well-considered, performance-based
process for determining executive compensation that is required to attract and
retain the best executives for utility and energy companies, which is consistent
with creating shareholder value. These material omissions are materially
misleading because they would lead shareholders to come to a different
conclusion about the Company's executive compensation practices than if they had
accurate and complete information.
Where the proponent has provided a clearly misleading statement, the proponent
should not be rewarded by including the proposal in the proxy materials. As
discussed above, the Proponent's material omission of statements and inclusion
of certain false and misleading statements support the exclusion of the Proposal
from the Company's proxy materials.
III. The Proposal may be excluded under Rule 14a-8(i)(10) because the Company
already has mechanisms in place for shareholders to communicate their opinions
on executive compensation.
Rule 14a-8(i)(10) permits a company to exclude a proposal where the company has
already substantially implemented the proposal. The Rule 14a-8(i)(10)
"substantial implementation" standard replaces the predecessor rule allowing
companies to exclude a "moot" proposal and expressly adopts the Staff's
interpretation of the predecessor rule that the proposal need not be "fully
effected" by the company to effect the mootness test, so long as it was
substantially implemented. SEC Release No. 34-20091 (August 16, 1983). A
determination that the Company has substantially implemented the proposal
depends upon whether its particular policies, practices and procedures compare
favorably with the guidelines of the proposal. Texaco, Inc. (March 28, 1991).
The Proposal in this case is intended to give shareholders an "effective means
to communicate their views on executive compensation policies to directors." Not
only is the method specified in the Proposal ineffective, as discussed above, a
more effective means for shareholders to communicate their views already exists.
Shareholders can currently communicate directly with the Board to express their
opinions about executive compensation by submitting their concerns to the
independent Presiding Director, who is responsible for forwarding such concerns
directly to the Organization and Compensation Committee. In doing so,
shareholders can express displeasure with or provide detailed suggestions as to
any element of any NEO's compensation or the policies underlying the
compensation. Such a method allows shareholders to address any specific aspect
of executive compensation that they desire; this communication will ultimately
be more useful for the Board in considering shareholder opinion because it
enables shareholders to identify particular aspects of executive compensation
they may want to change. In contrast, a shareholder's negative vote on an
advisory resolution on total executive compensation as set forth in the summary
compensation table of the proxy statement does not tell the Board anything
useful or meaningful.
The Staff has excluded proposals in which the manner of implementation did not
correspond with the details of the proposal, but the company implemented the
essential objective of the proposal. See SEC Release No. 34-20091 (August 16,
1983); AMR Corporation (April 17, 2000). Direct communication with the Board is
a mechanism that implements the essential objective of the Proposal, which is to
provide shareholders with an effective means to communicate their views about
NEO compensation, in as detailed and specific manner as such shareholder
desires.
Moreover, if the Proposal is adopted, direct communication with the Board may be
discouraged. Shareholders may be misled by the language of the supporting
statement and may choose to vote on the advisory resolution instead of directly
communicating with the Board, resulting in the reduced availability of useful
information to the Board. With an advisory resolution, the Board may have fewer
resources to ascertain the opinions of shareholders on executive compensation,
thereby impeding both the intent of the Proposal and the Board's goal of open
shareholder communications.
VI. Conclusion
Based on the foregoing analysis, we respectfully request that the Staff confirm
that it will not recommend any enforcement action if the Company excludes the
Proposal from its 2007 Proxy Materials.
* * *
In accordance with Rule 14a-8(j), we are simultaneously sending a copy of this
letter and all attachments to the Proponent. A copy of this letter has been
emailed to cfletters@sec.gov in compliance with the instructions found at the
Commission's website in lieu of our providing six additional copies of this
letter pursuant to Rule 14a-8(j)(2).
We would request an opportunity to discuss this letter with you prior to the
issuance of a response if the Staff believes that it would not be able to grant
relief requested herein.
If you have any questions, require further information or would like to discuss
this matter, please call Richard Harden, Esq. at 212-309-1246 or Teresa
Sebastian, Esq. (Assistant General Counsel, DTE Energy Company) at 313-235-3690.
Sincerely,
/s/
Rick Harden
Attachments
cc: James C. Harrison
Bruce Peterson, Esq., Senior Vice President and General Counsel, DTE Energy
Company
Teresa Sebastian, Esq., Assistant General Counsel, DTE Energy Company
-----FOOTNOTES-----
1 See paragraphs (1)-(5) below for a more detailed discussion.
[INQUIRY LETTER]
October 28, 2006
Sandra Kay Ennis
Corporate Secretary
DTE Energy Company
2000 2nd Avenue
Detroit, MI 48226-1279
Via Overnight Delivery
Re: Shareholder proposal
Dear Ms. Ennis:
I am enclosing for your attention a shareholder proposal for inclusion in the
Company's proxy statement to be circulated to shareholders in conjunction with
the next annual meeting. I submit this proposal under SEC Rule 14a-8.
I am a record holder of more than $2,000 in market value of the Company's
securities entitled to vote at the annual meeting, and have held these shares
continuously for more than one year prior to this date of submission. I intend
to hold these shares at least through the date of the Company's next annual
meeting.
Although I am a record holder of these shares through the Company's Stock
Purchase Plan, I am enclosing for your convenience a statement from the Bank of
New York confirming my ownership of these shares.
Either the undersigned or a designated representative will present the proposal
for consideration at the annual meeting of shareholders. Please let me know if
you require additional information.
Sincerely,
/s/
James C. Harrison
APPENDIX 1]
Shareholder Proposal
RESOLVED, that the shareholders of DTE Energy (the "Company") urge the Board of
Directors to adopt a policy that the Company's shareholders be given an
opportunity at each annual meeting to vote on an advisory resolution, to be
proposed by DTE management, to ratify the total compensation awarded to the
named executive officers during the preceding fiscal year (including cash,
equity, and all other compensation), as set forth in the summary compensation
table included in the proxy statement.
The proposal submitted to shareholders should make clear that the vote is
non-binding, will not affect any compensation paid or awarded to any executive
officer, and will not affect the approval of any compensation-related proposal
submitted for a vote of shareholders at the same or any other meeting of
shareholders.
Supporting Statement
In my view, senior executive compensation at our Company has become clearly
excessive. In 2005, CEO Anthony Earley received $5.5 million in total
compensation, including a base salary of over $1 million, an annual bonus of
$1.9 million, restricted stock worth $1.5 million, stock options worth an
estimated $587,000, and other compensation.
Mr. Earley's compensation has been significantly higher than compensation for
top executives at other comparable utility companies. For example, in 2005 CMS
Energy - the parent corporation for Michigan-based Consumers Electric - paid its
CEO less than a third of the total compensation paid to our CEO, even though CMS
serves approximately the same number of utility customers as DTE. Allegheny
Energy paid its CEO less than half of Mr. Earley's compensation that year.
American Electric Power, which had $3 billion more in total revenue in 2005 than
DTE and 1.5 million more customers, paid its CEO over $1 million less.
At the same time, directors failed last year to link even half of Mr. Earley's
compensation to corporate performance. In addition to his fixed salary, other
compensation such as $350,000 in dividends and "dividend equivalents" was
payable without regard to performance. The $1.5 million restricted stock grant
was for non-performance based stock, and therefore did not even qualify as
deductible "performance-based compensation" under the Internal Revenue Code.
In my view, DTE shareholders need a formal procedure to express their views on
executive pay practices. In the U.K. and Australia, for example, shareholders at
public companies are allowed to vote each year on the "directors' remuneration
report." Although these votes are non-binding, they give shareholders an
opportunity to send a clear message to corporate directors if shareholders
become dissatisfied with executive pay practices.
Similarly, a non-binding vote on senior executive compensation levels each year
would give DTE shareholders an effective means to communicate their views on
executive compensation policies to directors. This could help reduce excessive
compensation, while also encouraging directors to more closely link pay with
corporate performance. The results of the vote each year would also provide
directors with useful information concerning any shareholder concerns over
executive pay practices at our Company.
I therefore urge shareholders to vote FOR this proposal.
[INQUIRY LETTER]
January 8, 2007
Office of the Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Via Electronic Mail & UPS Overnight Delivery
Re: DTE Energy Corp. Shareholder Proposal
Ladies and Gentlemen:
I am writing on behalf of James C. Harrison in response to the December 29,
2006, request by DTE Energy (the "Company") for a no-action determination in the
above matter. As summarized below, the Company has failed to meet its burden of
demonstrating that it is entitled to exclude the proposal from its proxy
statement under Rule 14a-8. The Company's no-action request therefore should be
rejected.
I. The proposal may not be excluded as vague or indefinite under Rule
14a-8(i)(3)
Mr. Harrison's proposal is a straightforward: it urges DTE's Board to propose an
advisory shareholder vote at each annual meeting "to ratify the total
compensation awarded to the named executive officers during the preceding fiscal
year (including cash, equity, and all other compensation), as set forth in the
summary compensation table included in the proxy statement."
The resolution further clarifies that this proposed shareholder vote would be
non-binding, and would not affect any compensation paid to any executive officer
or the approval of any other compensation-related proposal submitted for a vote
of shareholders.1
Contrary to the Company's various assertions, there is nothing vague or
indefinite about this proposal. Both the Company and shareholders will readily
understand the resolution to urge the directors to submit a non-binding proposal
to shareholders each year asking whether they approve the compensation paid to
named executive officers, as disclosed in the proxy statement. Indeed, the
Company concedes that the resolution is clear, acknowledging that "shareholders
will likely understand the concept and procedure of voting for or against a
[named executive officer's] compensation."
DTE then seeks to confuse matters, however, by confusing this straightforward
proposal for a non-binding shareholder vote with the alleged difficulty
management claims it would have in interpreting the results of shareholder votes
in the future. Although we believe the Company's arguments in this respect are
also misplacedas summarized belowthis clearly provides no basis for DTE's
claim that the proposal itself is unclear.
Indeed, as the supporting statement relates, this non-binding shareholder vote
on executive pay is conducted each year at hundreds of publicly traded
corporations throughout the United Kingdom and Australia. As the New York Times
recently reported, this straightforward process has proven to be an effective
means to "provide a forum for investors to tell the company's management what
they think" about executive compensation.2 The resolution itself has been
submitted for recent shareholder votes at numerous U.S. public companies, and
has enjoyed significant shareholder support.3
The central arguments made by DTE for excluding the proposal were recently
rejected by Staff in Sara Lee Corp. (Sept. 11, 2006). As in this case, Sara Lee
asserted that a similar proposal was so inherently vague and indefinite that any
ultimate action taken by the company upon implementation would likely be
different from the type of action shareholders voting on the proposal had
envisioned.
Although agreeing on other grounds that the Sara Lee proposal as written might
be misleading, the Staff rejected Sara Lee's claim that the proposal was vague
and indefinite under Rule 14a-8(i)(3).4
If anything, the resolution in this case is even clearer than the resolution at
issue in Sara Lee. The original Sara Lee proposal called for a shareholder vote
to approve the compensation committee report on executive compensation. With the
modification suggested by Staff, the ultimate Sara Lee proposal would involve a
shareholder vote on the new Compensation Discussion and Analysis in the proxy
statement. Many of Sara Lee's arguments - which were rejected by Staff - focused
on the alleged lack of clarity whether the proposal called for a vote on
executive compensation levels or on executive compensation policies.
Mr. Harrison's proposal, by contrast, obviates these concerns by proposing a
straightforward, advisory shareholder vote on total compensation awarded to the
named executive officers. There is no reasonable argument that either the
shareholders or the Company could be confused about the meaning of this
proposal, or about the action DTE should take if it decides to implement the
proposal. Accordingly, DTE has clearly failed to meet its burden of
demonstrating that the proposal can be omitted as inherently vague or
misleading.5
II. The proposal may not be excluded as materially false or misleading under
Rule 14a-8(i)(3)
DTE has also clearly failed to meet its burden of objectively demonstrating that
any statement in either the proposal or supporting statement is materially false
or misleading, as required by the relevant Staff Legal Bulletins.
Indeed, DTE's objections are precisely the kinds of arguments that Staff has
made clear are inappropriate for no-action requests under Rule 14a-8(i)(3). At
best, the Company objects to assertions that clearly are neither false nor
misleading, but might be interpreted by shareholders in a manner unfavorable to
the Company, or could be countered or disputed with other facts.6
As Staff Legal Bulletin No. 14B makes clear, these are the sorts of arguments
that DTE could appropriately include a statement in opposition to the proposal
in the proxy. As summarized below, the Company's arguments clearly provide no
basis for omitting the resolution from shareholders' consideration.
A. The shareholder vote proposed by the resolution would indeed provide an
effective means for shareholders to communicate useful information to directors
about shareholder concerns over executive pay.
The Company claims that, because directors would have difficulty interpreting
the results of the shareholder vote proposed by the resolution, the assertion
made in the supporting statement that the procedure would provide "useful
information" to directors is false and misleading. Similarly, DTE challenges as
misleading the assertion in the supporting statement that the shareholder vote
would be an "effective means" to communicate shareholder views to directors.
These arguments are misplaced for numerous reasons.
First, DTE erroneously assumes that the vote proposed by the resolution must
necessarily consist solely of a single "up or down" vote on total compensation
to all named executive officers. The resolution itself, however, leaves broad
discretion to management to fashion the vote, and specifically states that the
advisory resolution would "be proposed by DTE management."
So long as this advisory resolution involved a shareholder vote "to ratify the
total compensation awarded to the named executive officers during the preceding
fiscal year" - the clear essence of the proposal - management would otherwise
have broad discretion to design the resolution. For example, if it chose to do
so, management could structure the vote to enable shareholders to vote
separately on the various components of executive pay (e.g., salary, bonus, and
long-term incentives), as well as on the compensation of each named executive
officer.
Second, an "up or down" vote on total compensation for all named executive
officers would indeed provide useful information to directors that is not
currently available. For example, an overwhelming negative vote would surely
signal to directors that shareholders are dissatisfied with executive pay at the
Company. A strong positive vote, by contrast, would communicate that
shareholders are satisfied with the reported executive compensation levels. Even
a close vote would communicate that there is no consensus among shareholders
concerning executive pay - additional useful information not currently available
to directors.
DTE also objects to a single reference to executive compensation "policies" in
the fifth paragraph of the supporting statement, asserting this is misleading
because the resolution calls for a shareholder vote on "total compensation," not
compensation "policies." This argument is also misplaced.
The resolution makes clear that the proposed shareholder vote would be on total
compensation awarded to named executive officers during the preceding fiscal
year. Certainly, the compensation approved by the directors for top executives
represents a Board policy. In context, the supporting statement merely argues
that the proposed shareholder vote would be an effective means to communicate
shareholder views concerning such compensation policies. This argument is
clearly not false or misleading.7
B. The supporting statement accurately relates facts concerning executive
compensation at comparable utility companies.
The supporting statement to the resolution accurately relates that compensation
for the Company's CEO "has been significantly higher than compensation for top
executives at other comparable utility companies." The statement then provides
three examples of comparable utility companies, including CMS Energy, another
Michigan-based utility which serves approximately the same number of customers
as DTE, but paid its CEO less than a third of the total compensation DTE paid to
its CEO in 2005.
The supporting statement also cites Allegheny Energy, which paid its CEO less
than half in total compensation in 2005, and American Electric Power, a much
larger utility company that nevertheless paid its CEO over $1 million less in
total 2005 compensation.
The accuracy of these statements cannot be disputed - and indeed can be easily
verified by reviewing these companies' proxy statements.8 If Rule 14a-8 afforded
proponents unlimited space, the supporting statement could have provided other
examples of comparable utility companies that pay its CEO less than DTE's CEO
receives.
There clearly was no need to do so. The supporting statement never claims that
all utility companies - or even a majority - pay their CEO's less. Instead, the
statement accurately reports that "other comparable utility companies" do so,
and then provides three specific examples.
Indeed, DTE does not even dispute the accuracy of these statements.9 Instead,
the Company argues that the resolution omits similar information for certain
unnamed other "peer companies." This argument ignores the fact that the
supporting statement makes no claim at all about "peer companies" - a red
herring injected solely by DTE, which in any event has never publicly disclosed
any set of companies it claims to be "peers" for purposes of comparing its
executive compensation.
This fact and others clearly distinguish this case from the no-action decisions
cited by DTE. In Keystone Financial, Inc. (3/15/1999), for example, the
proponent's supporting statement specifically claimed that "relevant peer group
analyses" supported its price projections for a potential sale of the bank. The
statement made no effort to identify the purported "peer groups," other than
vague references such as "Mid-Atlantic banks sold in 1998."
Similarly, in First Bell Bancorp, Inc. (3/3/2000), the proponent's supporting
statement also made specific claims concerning various "relevant peer groups,"
but without identifying the institutions comprising these supposed peer groups.
Significantly, the Staff in both cases rejected the companies' requests that the
shareholder proposals should be excluded entirely. Instead, Staff permitted the
proponents to revise the supporting statements merely to identify the
institutions comprising the asserted "peer groups."
In the present case, by contrast, the supporting statement accurately asserts
that total compensation for DTE's CEO has been significantly higher than at
"other comparable utility companies," and then cites three specific utility
companies as examples. Thus, there is no basis for the Company's claim that the
supporting statement is misleading.
C. The supporting statement accurately reports total 2005 compensation for DTE's
CEO.
The Company also erroneously claims that the supporting statement "misstates"
the DTE CEO's total compensation as $5.5 million, and that the correct amount
would be almost $135,000 less. As summarized below, the first paragraph in the
supporting statement accurately reports that the CEO's total 2005 compensation
was $5.5 million. We assume the Company's error is based on its attorneys' lack
of familiarity with DTE total compensation and the Company's proxy statement.
As reported at footnote 2 of the summary compensation table in DTE's 2006 proxy,
the Company paid its CEO an additional $175,100 in dividends on restricted stock
awards (even though this restricted stock has not yet been "earned"). DTE does
not disclose the value of these dividends in the summary compensation table
itself, but does so in the footnotes to the table. Since this is clearly
compensation, the proponent properly included this amount as total reported
compensation paid to the CEO in the first opening paragraph of the supporting
statement.10
By adding $175,100 to the $5,365,793 reported in the table (using the Company's
estimate for the value of the stock options), it is readily apparent that DTE
paid its CEO $5,540,893 in total compensation during 2005. By rounding down, the
supporting statement accurately reports that total CEO compensation was $5.5
million.
D. The Company's various other arguments are also without merit.
In addition, the Company claims that the supporting statement should have
reported other information that might have cast DTE compensation practices in a
better light - such as compensation data for years other than 2005 or for other
unnamed companies. DTE also argues the proponent should have compared annual
compensation, but not long-term, and even defends the merits of its long-term
compensation policies as justified by its corporate performance.
These are precisely the sorts of arguments that Staff has indicated are wholly
inappropriate for claims that a resolution is false and misleading under Rule
14a-8(i)(3). Certainly, DTE can take unlimited space in its proxy to report
whatever data it chooses to report, or to otherwise argue the merits of its
opposition to the resolution to shareholders. This provides no basis, however,
to deny shareholders the opportunity to vote on the resolution entirely.
DTE also argues that the proponent should have compared compensation for named
executive officers other the CEO, and that this alleged omission renders
misleading the supporting statement's claim that "senior executive compensation
at our Company has become clearly excessive." In addition, DTE erroneously
claims that a comparison of compensation for other named executive officers
would show that DTE compensation "falls within the range" of compensation at the
other companies cited by the proponent.
What DTE overlooks is that the specific sentence challenged by the Company is
clearly stated as an opinion: "In my view, senior executive compensation at our
Company has become clearly excessive." As an example, the supporting statement
then accurately states the total 2005 compensation for the Company's CEO. As an
additional example in the following paragraph, the proponent accurately compares
CEO compensation at three other utility companies.
Nothing in this discussion is misleading, or would require the supporting
statement to make additional comparisons concerning compensation paid to other
executive officers.
Even if the supporting statement had made such comparisons, moreover, a review
of the proxy statements reveals that total compensation paid to the four highest
paid executives other than the CEO is significantly higher at DTE than at the
other three companies cited by the proponent.11 Thus, although the assertions
made in DTE's letter are certainly misleading, the supporting statement
submitted by the proponent clearly is not.
In summary, the supporting statement clearly states the proponent's opinion that
executive compensation at the Company "has become clearly excessive." As one
example, the statement accurately relates the CEO's total compensation in 2005
(the most recent year for which data is available), and then accurately compares
total compensation for CEO's at DTE and three other utility companies.
The supporting statement goes on to relate that the Company's directors last
year failed to link even half of the CEO's compensation to performance - a fact
that DTE makes no effort to contest - and observes that two other major
industrial nations follow a similar process for non-binding shareholder votes on
executive pay for their public companies.
The supporting statement then closes with an expressed opinion that adopting a
similar vote on senior executive compensation levels at DTE would provide an
effective means to communicate shareholder concerns about executive pay to
directors. Clearly, the Company has failed to meet its burden of demonstrating
that any statement made in the proposal or its supporting statement is
materially false or misleading. Rule 14a-8(i)(3) therefore provides no basis to
either omit or modify the resolution.12
III. The Company has not substantially implemented the proposal under Rule
14a-8(i)(10)
There can be no serious contention that the Company has substantially
implemented the proposal, based on the fact that DTE shareholders can write
letters to the Board of Directors expressing their opinions about executive
compensation. Certainly shareholders at DTE - as at any company - are free to
write directors about executive pay or any other subject. This is hardly a
substitute for the proposal.
Under the process urged by the resolution, DTE management would propose at each
annual meeting an advisory resolution for shareholders to vote on total
compensation paid to the Company's top officers. Every shareholder would receive
this resolution in the proxy statement and proxy card, and the results would be
disclosed in the Company's next SEC Form 10Q.
Although DTE speculates that adopting the resolution might somehow discourage
shareholders from communicating their views directly to directors, there is no
logical reason to assume this would be the case. Clearly, the systematic
shareholder vote recommended by the proposal would provide other information, in
addition to whatever random communications the Board might otherwise receive
directly from shareholders.
The Company therefore has clearly failed to show that it has "substantially
implemented" the proposal, and the resolution cannot be excluded on that basis.
IV. Conclusion
For the foregoing reasons, we urge the Staff to reject the Company's request for
a no-action determination in this matter. Please let me know if you require
additional information concerning Mr. Harrison's position.
Sincerely,
/s/
Mark Brooks
cc: Richard Harden, Hunton & Williams James C. Harrison
-----FOOTNOTES-----
1 The entire proposal - correcting the typographical error by DTE's attorneys in
the Company's letter to Staff - provides as follows:
"RESOLVED, that the shareholders of DTE Energy (the "Company") urge the Board of
Directors to adopt a policy that the Company's shareholders be given an
opportunity at each annual meeting to vote on an advisory resolution, to be
proposed by DTE management, to ratify the total compensation awarded to the
named executive officers during the preceding fiscal year (including cash,
equity, and all other compensation), as set forth in the summary compensation
table included in the proxy statement.
"The proposal submitted to shareholders should make clear that the vote is
non-binding, will not affect any compensation paid or awarded to any executive
officer, and will not affect the approval of any compensation-related proposal
submitted for a vote of shareholders at the same or any other meeting of
shareholders."
2 "Compensation experts offer ways to help curb executive salaries," Eric Dash,
New York Times, Dec. 30, 2006.
3 During 2006, resolutions substantially identical to this resolution were
submitted to shareholder votes at U.S. Bancorp (41% approval), Merrill Lynch
(36%), Home Depot (40%), Countrywide Financial (44%), Sun Microsystems (44%),
Cardinal Health (35%), and Sara Lee (43%).
4 Unlike the present proposal, the proposal in Sara Lee urged the company to
conduct a shareholder vote each year on the compensation committee's report.
Before the recent SEC rule change, a shareholder vote on the compensation
committee report served as a logical proxy for a vote on executive compensation.
Because the recent SEC rule amendments radically altered the contents of
compensation committee reports, the Staff agreed the Sara Lee resolution as
written could be misleading. Staff permitted the proponent, however, to modify
the proposal to provide for a shareholder vote on the new Compensation
Discussion and Analysis.
Mr. Harrison's proposal, by contrast, urges the Board of Directors to provide
for an annual advisory shareholder vote on the total compensation paid to the
named executive officers, as disclosed in the proxy. As noted above, this
proposal is even clearer than the resolution at issue in Sara Lee.
5 The other no-action decisions cited by DTE are clearly inapposite. In Fuqua
Industries, Inc. (3/12/1991), for example, the resolution involved an
incomprehensible proposal restricting ill-defined "major shareholders" from
"compromising the ownership" of other stockholders.
6 Staff Legal Bulletin No. 14B (Sept. 15, 2004).
7 Should Staff concur with DTE that the reference to "policies" is misleading,
the supporting statement could easily be edited by simply deleting the word
"policies" from that one sentence.
8 The summary compensation tables in these companies' 2006 proxies report the
following data for CEO total compensation: |[NCCDEF] |[UCA1]
|[TDC3,M'Allegheny',QL] |[TCC1,M'$0.000.000',QR] |[TCC1,M'$0.000.000',QR]
|[TCC1,M'$000.000',QR] |[TCC1,M'$0.000.000',QR] |[TCC1,M'$000.000',QR]
|[TCC1,M'$000.000',QR] |[TCC1,M'$000.000',QR] |[TCC1,M'$0.000.000',QR] |[XT]
|[ST]|[LC5]|[TN1,9]|[TU204] |[ST]|[LC3]|[RS3] |[TA]Base Salary|[QC] |[TA]Annual
Bonus|[QC] |[TA]Other Annual|[QC] |[TA]Restricted Stock|[QC]
|[TA]SAR's/Options|[QC] |[TA]LTIP Payouts|[QC] |[TA]All Other|[QC]
|[TA]Total|[QC] |[ST]|[LC3]|[TN1,9]|[TU204] |[ST]|[LC3]|[RS3]DTE|[RS1]
|[TA]$1,077,500 |[TA]$1,850,000 |[TA]$175,100 |[TA]$1,473,120 |[TA]$587,000
|[TA]$138,423 |[TA]$64,650 |[TA]$5,365,793 |[ST]|[LC3]|[TN1,9]|[TU204]
|[ST]|[LC3]|[RS3]AEP|[RS1] |[TA]1,150,000 |[TA]2,250,000 |[TA]614,191
|[TA]163,500 |[TA]- |[TA]- |[TA]107,400 |[TA]4,285,091
|[ST]|[LC3]|[TN1,9]|[TU204] |[ST]|[LC3]|[RS3]CMS|[RS1] |[TA]910,000 |[TA]822,125
|[TA]- |[TA]- |[TA]- |[TA]- |[TA]29,120 |[TA]1,761,245
|[ST]|[LC3]|[TN1,9]|[TU204] |[ST]|[LC3]|[RS3]Allegheny|[RS1] |[TA]940,900
|[TA]1,500,000 |[TA]135,204 |[TA]- |[TA]- |[TA]- |[TA]7,496 |[TA]2,583,600
|[ST]|[LC3]|[TN1,9]|[TU204] |[ET]
9 DTE makes a misleading argument that, contrary to an assertion in the
supporting statement, American Electric Power "actually paid its CEO about $1
million more in total annual compensation" than DTE paid its CEO in 2005
(emphasis supplied). The Company's claim is misleading, if not deceptive. The
entire relevant paragraph in the supporting statement clearly compares total
compensation for CEOs at the four companies - including AEP - and makes no
comparisons concerning annual compensation. As demonstrated in the table in the
previous footnote, AEP clearly paid its CEO over $1 million less in total
compensation during 2005, as accurately related in the supporting statement. The
proponent believes that total compensation is the more relevant comparison.
10 According to DTE's proxy, this $175,100 in dividends on the restricted stock
is clearly in addition to the $175,100 in "dividend equivalents" that DTE also
paid to its CEO on outstanding performance shares. Unlike the dividends, DTE
discloses these dividend equivalents as "Other Annual Compensation" in the
summary table.
For the sake of clarity, the proponent omitted the additional $175,100 in
restricted stock dividends for purposes of comparing CEO compensation of the
various companies summarized in the second paragraph of the supporting statement
(as related in note 8 above). The proponent omitted the value of these
dividends, since it is unknown whether similar dividend payments might have been
omitted from the other companies' summary compensation tables. In any event, it
is clearly accurate to include this additional $175,100 in reporting the CEO's
total compensation in the first paragraph of the supporting statement.
11 According to the summary compensation tables in the 2006 proxy statements
filed by DTE, CMS, AEP, and Allegheny Energy, these companies awarded the
following in total compensation during 2005 to their four highest paid
executives other than the CEO: |[NCCDEF] |[UCB2] |[TDC4,MP1,QL,I1]
|[TCC4,MP1,QR] |[XT] |[ST]|[BK]|[LC5]|[TN1,2]|[TU204] |[ST]|[RS3]DTE|[RS1]
|[TA]$6,698,222 |[ST]|[TN1,2]|[TU204] |[ST]|[RS3]CMS|[RS1] |[TA]3,605,620
|[ST]|[TN1,2]|[TU204] |[ST]|[RS3]AEP|[RS1] |[TA]4,812,508 |[ST]|[TN1,2]|[TU204]
|[ST]|[RS3]Allegheny|[RS1] |[TA]6,229,818 |[ST]|[TN1,2]|[TU204] |[ET]
Thus, DTE paid these executive officers 86% more than the comparable executives
at CMS. Even at the closest comparator company, DTE paid 7.5% more than
Allegheny Energy.
12 In the event Staff concurs with the Company that any statement in the
resolution or supporting statement is materially misleading, the proponent has
no objection to modifying the proposal.
[INQUIRY LETTER]
January 26, 2007
VIA ELECTRONIC MAIL
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
101 F. Street, N.E.
Washington, D.C. 20549
Re: DTE Energy Company Withdrawal of No-Action Request
Ladies and Gentlemen:
By letter dated December 29, 2006, on behalf of DTE Energy Company (the
"Company"), we requested that the Staff of the Securities and Exchange
Commission confirm that it would not recommend any enforcement action against
the Company if it omitted from its 2007 proxy materials a shareholder proposal
(the "Proposal") submitted by James C. Harrison (the "Proponent").
Please be advised that by letter dated January 24, 2007, the Proponent notified
the Company that he is withdrawing the Proposal. A copy of the Proponent's
letter is attached hereto as Exhibit A. Accordingly, we are hereby notifying the
Staff of the Division of Corporation Finance that the Company intends to omit
the Proposal from its 2007 proxy materials and is withdrawing its request for
no-action relief in connection with the Proposal.
We are simultaneously sending a copy of this letter and all attachments to the
Proponent. A copy of this letter has been emailed to cfletters@sec.gov in
compliance with the instructions found at the Securities and Exchange
Commission's website.
If you have any questions or would like any additional information regarding the
foregoing, please do not hesitate to contact Richard Harden, Esq. at
212-309-1246 or Teresa Sebastian, Esq. (Assistant General Counsel, DTE Energy
Company) at 313-235-3690.
Sincerely,
/s/
Richard Harden
Attachment
cc: James C. Harrison Bruce Peterson, Esq., Senior Vice President and General
Counsel, DTE Energy Company Teresa Sebastian, Esq., Assistant General Counsel,
DTE Energy Company
APPENDIX 2]
January 24, 2007
Sandra Kay Ennis
Corporate Secretary
DTE Energy Company
2000 2nd Avenue
Detroit, MI 48226-1279
VIA FAX: 323-235-6031
RE: Shareholder proposal
Dear Ms. Ennis:
The purpose of this letter is to inform you that effective upon your receipt of
this letter I am respectfully withdrawing my shareholder proposal, which I
submitted on October 28, 2006.
Sincerely,
/s/
James C. Harrison
STAFF REPLY LETTER]
January 29, 2007
Richard Harden
Hunton & Williams LLP
200 Park Avenue
New York, NY 10166-0136
Re: DTE Energy Company
Dear Mr. Harden:
This is in regard to your letter dated January 26, 2007 concerning the
shareholder proposal submitted by James C. Harrison for inclusion in DTE's proxy
materials for its upcoming annual meeting of security holders. Your letter
indicates that the proponent has withdrawn the proposal, and that DTE therefore
withdraws its December 29, 2006 request for a no-action letter from the
Division. Because the matter is now moot, we will have no further comment.
Sincerely,
/s/
Ted Yu Special Counsel
cc: James C. Harrison 3539 Armour Street Port Huron, MI 48060-2264
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