Cummins shareholder vote: Director nominees approved, compensation and leadership structure proposals rejected

Mike Wolanin | The Republic A view of the Cummins building adjacent to the Irwin Conference Center in Columbus, Ind., Monday, February. 26, 2024.

Cummins Inc. shareholders on Tuesday voted in favor of a slate of directors nominated by the company’s board but rejected proposals to tie executive pay to greenhouse gas emissions reductions and split the chair and chief executive officer roles.

The votes took place during the Cummins’ annual investor meeting, which was held virtually on Tuesday, and came nearly two weeks after the Columbus-based company reported $8.4 billion in revenue in the January-March period, down 1% compared to the first quarter last year.

The slate of 11 director nominees included Cummins Chair and CEO Jennifer Rumsey, the only Cummins employee on the board. The remaining board members come from outside the company. Rumsey has been a director since 2022.

Shareholders also considered two proposals — one that would have tied executive compensation to greenhouse gas emissions reductions and another that would have split the chairman and chief executive officer roles.

The proposal on executive compensation, submitted by As You Sow on behalf of Warren Wilson College, would have asked the Cummins Board of Directors to disclose a plan to link executive compensation to greenhouse gas reductions in accordance with the Paris Agreement across the company’s full value chain, according to a copy of the proposal.

The Paris Agreement is an international treaty on climate change adopted in 2015 that seeks, among other things, “to limit the temperature increase to 1.5°C above pre-industrial levels,” according to the United Nations.

As You Sow is a non-profit foundation that seeks, among other things, to promote corporate social responsibility through shareholder advocacy, according to its website. Warren Wilson College is a private liberal arts college in North Carolina.

“While Cummins’ 2023 proxy statement commends its CEO’s role in advancing Cummins’ decarbonization strategy, there is no evidence of a direct payout linked to climate change performance,” according to the text of the proposal. “…Cummins states its CEO is entitled to a monetary incentive for advancing Cummins’ PLANET 2050 goals, which are partially related to reducing emissions. However, Cummins fails to provide a quantitative emissions-reduction incentive that has a specified payout percentage.”

The Cummins Board of Directors, for its part, has recommended that shareholders reject the proposal, arguing in a proxy statement filed with regulators that the proposal’s approach “is not in the best interest of the company and its shareholders at this time, particularly in light of the actions Cummins is already taking to address climate change and sustainability.”

The board highlighted the company’s PLANET 2050 and Destination Zero strategies, including the aspirational target of carbon neutrality by 2050.

“While we are committed to furthering our sustainability efforts, our core values guide how we approach fulfilling that commitment,” the board said in a statement in opposition to the proposal. “As such, we believe it would be irresponsible to commit to the proponent’s requested actions before completing the necessary foundational steps, many of which were underway before we received the proponent’s proposal.”

The board further argues that the proposal “unduly interferes” with its Talent Management and Compensation Committee, which is entirely comprised of independent directors and “requires flexibility to determine the appropriate metrics for our executive compensation program.”

“Our shareholders’ interests are best served by maintaining the Committee’s flexibility to determine the metrics that are best suited to drive environmental progress in parallel with sustainable, long-term growth,” the board said in the statement of opposition. “As such, we do not believe it is in the company’s or our shareholders’ best interests to commit to the actions in the proposal, and we recommend that our shareholders vote against it.”

Last year, Cummins shareholders also rejected a similar proposal on linking executive pay to climate performance during the company’s annual meeting.

However, this year’s annual meeting comes a few months after Cummins reached a settlement with federal and California regulators to resolve allegations that the company installed software on certain RAM pickup truck engines that thwarted emissions rules in violation of the Clean Air Act.

As part of the settlement, Cummins agreed to pay a $1.675 billion civil penalty — which the government said is the largest civil penalty ever under the Clean Air Act — recall 600,000 RAM trucks and fund emission mitigation projects. The cost of the projects and recall are estimated at more than $325 million, bringing the total penalty to around $2 billion.

The engines in question were made at the Cummins Mid-Range Engine Plant in Walesboro, Cummins officials told The Republic previously. Cummins, which did not admit wrongdoing in the settlement, has said that it fully cooperated with regulators and “has seen no evidence that anyone acted in bad faith.”

Additionally, shareholders considered a proposal that sought to divide the company’s chair of the company’s board and CEO roles into two separate positions that would be filled by two different people. The two roles are held by Rumsey.

The proposal, which was submitted by a Cummins shareholder, argued that the chairman and CEO “are fundamentally different” roles and “should be held by two directors, a CEO and a chairman who is completely independent of the CEO and our company.” Similar proposals also were voted down in 2023, 2022, 2019, 2015 and 2013.

The Cummins board of directors also recommended shareholders to vote against the proposal, arguing in a proxy statement filed with regulators that shareholders would be “best served if the board retains the organizational flexibility to select the best person to serve as chairperson,” even if that person also is CEO.

“Given the dynamic and competitive environment in which the company operates, this flexibility allows our board to decide what leadership structure works best for our company based on the facts and circumstances existing from time to time,” the board states in its proxy statement.

Currently, it is unclear what percentage of investors voted against the proposals on Tuesday. Company officials did not provide detailed results during the meeting but said they planned to file the results with federal regulators following the meeting.

The filing was not made before press deadline.