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Proxy Voting Policies
T. Rowe Price Associates, Inc. and T. Rowe Price International, Inc. ("T. Rowe Price") recognize and adhere to the principle that one of the privileges of owning stock in a company is the right to vote on issues submitted to shareholder vote—such as election of directors and important matters affecting a company's structure and operations. As an investment adviser with a fiduciary responsibility to its clients, T. Rowe Price analyzes the proxy statements of issuers whose stock is owned by the investment companies that it sponsors and serves as investment adviser. T. Rowe Price also is involved in the proxy process on behalf of its institutional and private counsel clients who have requested such service. For those private counsel clients who have not delegated their voting responsibility but who request advice, T. Rowe Price makes recommendations regarding proxy voting.
Proxy administration
The T. Rowe Price Proxy Committee develops our firm's positions on all major proxy voting issues, creates guidelines, and oversees the voting process. The Proxy Committee, composed of portfolio managers, investment operations managers, and internal legal counsel, analyzes proxy policies based on whether they would adversely affect shareholders' interests and make a company less attractive to own. In establishing our proxy policies each year, the Proxy Committee relies upon our own fundamental research, independent research provided by outside proxy advisors RiskMetrics Group and Glass Lewis, and information presented by company managements and shareholder groups.
Once the Proxy Committee establishes its recommendations, they are distributed to the firm's portfolio managers as voting guidelines. Ultimately, the portfolio managers decide how to vote on the proxy proposals of companies in their portfolios. Because portfolio managers may have differences of opinion on portfolio companies and their proxies, or their portfolios may have different investment objectives, these factors, among others, may lead to different votes between portfolios on the same proxies. When portfolio managers cast votes that are counter to the Proxy Committee's guidelines, they are required to document their reasons in writing to the Proxy Committee. Annually, the Proxy Committee reviews T. Rowe Price's proxy voting process, policies, and voting records.
T. Rowe Price has retained RiskMetrics Group, an expert in the proxy voting and corporate governance area, to provide advisory and voting services. These services include voting recommendations, vote execution, reporting, auditing and consulting assistance for the handling of our proxy voting responsibility. In order to reflect T. Rowe Price's issue-by-issue voting guidelines as approved each year by the Proxy Committee, RiskMetrics Group maintains and implements a custom voting policy for the Price Funds and other client accounts.
Fiduciary considerations
T. Rowe Price's decisions with respect to proxy issues are made in light of the anticipated impact of the issue on the desirability of investing in the portfolio company. Proxies are voted solely in the interests of the client, Price Fund shareholders or, where employee benefit plan assets are involved, in the interests of plan participants and beneficiaries. Practicalities and costs involved with international investing may make it impossible at times, and at other times disadvantageous, to vote proxies in every instance. For example, we might refrain from voting if we or our agents are required to appear in person at a shareholder meeting or if the exercise of voting rights results in the imposition of trading or other ownership restrictions.
Other considerations
One of the primary factors T. Rowe Price considers when determining the desirability of investing in a particular company is the quality and depth of its management. We recognize that a company's management is entrusted with the day-to-day operations of the company, as well as its long-term direction and strategic planning, subject to the oversight of the company's board of directors. Accordingly, our proxy voting guidelines are not intended to substitute our judgment for management's with respect to the company’s day-to-day operations. Rather, our voting guidelines are designed to promote accountability of a company's management and board of directors to its shareholders; to align the interests of management with those of shareholders; and, to encourage companies to adopt best practices in terms of their corporate governance. In addition to our voting guidelines (which are described in more detail below), we rely on a company's disclosures, its board's recommendations, a company’s track record, country-specific best practices codes, our research providers and, most importantly, our investment professionals' views, in making voting decisions.
Monitoring and resolving conflicts of interest
The Proxy Committee is also responsible for monitoring and resolving possible material conflicts between the interests of T. Rowe Price and those of its clients with respect to proxy voting. We have adopted safeguards to ensure that our proxy voting is not influenced by interests other than those of our fund shareholders. While membership on the Proxy Committee is diverse, it does not include individuals whose primary duties relate to client relationship management, marketing, or sales. Since our voting guidelines are predetermined by the Proxy Committee using recommendations from RMG, an independent third party, application of the T. Rowe Price guidelines to vote clients' proxies should in most instances adequately address any possible conflicts of interest. However, for proxy votes inconsistent with T. Rowe Price guidelines, the Proxy Committee reviews all such proxy votes in order to determine whether the portfolio manager's voting rationale appears reasonable. The Proxy Committee also assesses whether any business or other relationships between T. Rowe Price and a portfolio company could have influenced an inconsistent vote on that company's proxy. Issues raising possible conflicts of interest are referred to designated members of the Proxy Committee for immediate resolution prior to the time T. Rowe Price casts its vote. With respect to personal conflicts of interest, T. Rowe Price's Code of Ethics requires all employees to avoid placing themselves in a "compromising position" where their interests may conflict with those of our clients and restricts their ability to engage in certain outside business activities. Portfolio managers or Proxy Committee members with a personal conflict of interest regarding a particular proxy vote must recuse themselves and not participate in the voting decisions with respect to that proxy.
Index, retirement, and spectrum funds
Voting of T. Rowe Price Group, Inc., common stock (sym: TROW) by certain T. Rowe Price index funds will be done in all instances in accordance with T. Rowe Price policy, and votes inconsistent with policy will not be permitted. The Retirement and Spectrum Funds own shares in underlying T. Rowe Price funds. If an underlying T. Rowe Price fund has a shareholder meeting, the Retirement and Spectrum Funds normally would vote their shares in the underlying fund in the same proportion as the votes of the other shareholders of the underlying fund. This is known as "echo voting" and is designed to avoid any potential for a conflict of interest. This same process would be followed with respect to any T. Rowe Price funds owning shares in other T. Rowe Price funds.
Global portfolio companies
T. Rowe Price applies a two-tier approach to determining and applying global proxy voting policies. The first tier establishes baseline policy guidelines for the most fundamental issues, which apply without regard to a company's domicile. The second tier takes into account various idiosyncrasies of different countries, making allowances for standard market practices, as long as they do not violate the fundamental goals of good corporate governance. The goal is to enhance shareholder value through effective use of the shareholder franchise, recognizing that applying policies developed for U.S. corporate governance is not appropriate for all markets.
Proxy vote disclosure
T. Rowe Price funds make broad disclosure of their proxy votes on troweprice.com and on the SEC's Internet site at http://www.sec.gov. All funds, regardless of their fiscal years, must file with the SEC by August 31, their proxy voting records for the most recent 12-month period ended June 30.
T. Rowe Price's U.S. voting guidelines
Following are selected key voting issues and the T. Rowe Price proxy voting guidelines for 2010.
- Auditors
- Boards of directors
- Proxy contests
- Anti-takeover provisions
- Corporate governance provisions
- Capital structure
- Compensation
- Mergers and acquisitions
- Socially oriented shareholder proposals
Auditors
T. Rowe Price policy
Generally FOR approval of auditors. However AGAINST ratification of auditors and/or AGAINST members of the audit committee if:
- An auditor has a financial interest in or association with the company, and is therefore not independent;
- here is reason to believe that the auditor has rendered an opinion that is neither accurate nor indicative of the company's financial position;
- The auditor has issued an adverse opinion on the company's most recent financial statements;
- A material weakness under Section 404 of the Sarbanes-Oxley Act rises to a level of serious concern, there are chronic internal control weaknesses, or there is an absence of effective control mechanisms;
- Pervasive evidence indicates that the committee entered into an inappropriate indemnification agreement with its auditor; or
- Non-audit fees are excessive in relation to audit-related fees.
T. Rowe Price policy
Generally AGAINST auditor indemnification and limitation of liability that limits shareholders' ability to pursue legitimate legal recourse against the audit firm.
Boards of directors
T. Rowe Price policy
Generally, FOR slates with a majority of independent directors. FOR slates with less than a majority of independent directors if the company has a shareholder (or group of shareholders) who controls the company by means of economic ownership, not supervoting control.
AGAINST individual directors in the following cases:
- Inside directors and affiliated outside directors who serve on the board's audit, compensation or nominating committees;
- Any director who missed more than 25 percent of scheduled board and committee meetings, absent extraordinary circumstances;
- Any director who sits on more than six public company boards; or
- Any director who is CEO of a publicly traded company and serves on more than two other public boards.
AGAINST members of the compensation committee in the following cases:
- Company re-prices underwater options for stock, cash or other consideration without prior shareholder approval; or
- Company has demonstrated poor compensation practices, taking into consideration performance results and other factors.
AGAINST the entire board, certain committee members or all continuing directors in the following cases:
- Directors ignored a shareholder proposal that was approved by a majority of the votes cast for two consecutive years, unless management puts the proposal on the ballot as a management proposal with a recommendation to vote FOR;
- Directors ignored a shareholder proposal that was approved by a majority of the shares outstanding at the last meeting, unless management puts the proposal on the ballot as a management proposal with a recommendation to vote FOR;
- Directors adopted a poison pill (after Nov. 2009) without shareholder approval, if the board has not committed to put it to a vote within 12 months (This policy is in effect for the three years subsequent to the plan’s adoption);
- Directors approved egregious corporate governance actions or exhibit persistent failure to represent shareholders' interests, in the opinion of T. Rowe Price's Proxy Committee, either on their current board or when having served on other company boards; or
- A director (or directors) received less than 50 percent of votes cast in the prior year and did not subsequently resign.
T. Rowe Price policy
FOR proposals that provide expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he believed was in the best interest of the company, and (2) only if the director's legal expenses would be covered.
AGAINST, if the proposal limits or eliminates entirely directors’ and officers’ liability for monetary damages for violating the duty of care.
T. Rowe Price policy
Generally FOR, unless there is an acceptable counterbalancing governance structure with a Lead Independent Director, the board is majority independent, and the key board committees are fully independent.
T. Rowe Price policy
Generally FOR non-binding proposals asking the Board to initiate the process to provide that director nominees be elected by the affirmative majority of votes cast at an annual meeting of shareholders. Resolutions should specify a carve-out for a plurality vote standard when there are more nominees than board seats.
Proxy contests
T. Rowe Price policy
CASE-BY-CASE, considering the long-term financial performance of the target company relative to its industry, management's track record, the qualifications of the dissident nominees, and other factors.
T. Rowe Price policy
FOR proposals to reimburse a dissident candidate's proxy solicitation expenses provided the candidate was elected to the board.
Anti-takeover provisions
T. Rowe Price policy
Generally, AGAINST, unless the plan has been designed to protect shareholders' ability to act under certain circumstances and contains these provisions:
- No lower than a 20 percent trigger;
- A term of no longer than three years;
- No dead-hand, slow-hand or similar feature that limits the ability of a future board to redeem the pill; and
- A qualifying offer clause.
T. Rowe Price policy
FOR, unless the shareholders have already approved the pill, or the company commits to giving shareholders the right to approve it within 12 months.
T. Rowe Price policy
AGAINST proposals to elect directors to staggered, multi-year terms. FOR proposals to repeal staggered boards and elect all directors annually.
T. Rowe Price policy
FOR proposals seeking to fix the size of the board. AGAINST proposals giving the company the ability to alter the size of the board without shareholder approval.
Corporate governance provisions
T. Rowe Price policy
AGAINST proposals to provide for cumulative voting at the election of directors
T. Rowe Price policy
FOR proposals allowing shareholders to call special meetings when either (a) the company does not already afford shareholders that right, or (b) the threshold to call a special meeting is greater than 25 percent. AGAINST proposals to reduce the threshold of shareholders required if the company has in place a standard of no more than 25 percent. AGAINST proposals to restrict or prohibit shareholders' ability to call special meetings.
T. Rowe Price policy
AGAINST proposals that restrict or prohibit shareholder ability to take action by written consent. FOR proposals that would allow shareholder action by written consent if the company does not already offer shareholders the right to call special meetings.
T. Rowe Price policy
Generally AGAINST proposals requiring more than 60 days' advance notice. Generally, FOR advance notice provisions requesting detailed information of the filer’s economic and voting stakes.
T. Rowe Price policy
AGAINST proposals to require a supermajority shareholder vote. Generally FOR proposals to adopt simple majority requirements for all items that require shareholder approval.
T. Rowe Price policy
CASE-BY-CASE on management proposals regarding domestic, state-to-state reincorporations. AGAINST proposals to reincorporate offshore. FOR proposals that call for companies incorporated in offshore tax havens to reincorporate in the United States. AGAINST shareholder proposals to move incorporation from one state to another.
Capital structure
T. Rowe Price policy
AGAINST proposals that authorize the issuance of shares that would create disproportionate voting rights.
T. Rowe Price policy
CASE-BY-CASE, considering the proposed use for the additional shares, dilutive impact to shareholders, and other factors
T. Rowe Price policy
Generally, FOR.
T. Rowe Price policy
Generally, FOR proposals where there is a proportionate reduction in the number of authorized shares.
T. Rowe Price policy
Generally, FOR proposals to create a class of preferred stock where the company specifies acceptable voting, dividend, conversion and other rights. AGAINST proposals to create a blank check preferred stock with unspecified voting, dividend, conversion and other rights.
T. Rowe Price policy
CASE-BY-CASE
Compensation
T. Rowe Price policy
Generally FOR proposals to award cash fees to non-executive directors, unless fees are excessive. Generally FOR director equity plans that are subject to reasonable stock ownership guidelines, have an appropriate vesting schedule, represent a prudent mix between cash and equity, provide adequate disclosure and do not include inappropriate benefits such as post-retirement payments or executive perks.
T. Rowe Price policy
Votes on equity plans are determined on a CASE-BY-CASE basis, using our proprietary, quantitative scorecard. AGAINST equity plans that have an unacceptable number of the following problematic elements:
- poor structural features such as evergreen provisions or the ability to reprice options;
- a high burn rate relative to the company's peer group;
- an unacceptable level of potential dilution relative to the company's size, industry and growth profile;
- an unusually high concentration of total awards granted to the Named Executive Officer group;
- poor pay practices generally; or
- an inappropriate mix of options and full-value awards.
T. Rowe Price policy
Generally AGAINST, unless the value of the new options received under the exchange program is less than under the old plan, top officers and directors are excluded, and other shareholder-friendly conditions exist.
T. Rowe Price policy
Generally, FOR.
T. Rowe Price policy
CASE-BY-CASE, taking into account company performance, executive compensation practices, level of compensation, mix of compensation types and the company's overall governance profile.
T. Rowe Price policy
Generally FOR proposals that call for non-binding shareholder ratification of the compensation of the Named Executive Officer group.
T. Rowe Price policy
AGAINST, because we believe options are inherently performance-based, and if used prudently, they can effectively align shareholders' and executives' interests.
T. Rowe Price policy
AGAINST, because bonus plans can provide effective incentives when they form part of an overall compensation plan that balances short-term and long-term goals and awards.
T. Rowe Price policy
AGAINST as the benefits are unclear and these types of proposals are difficult to apply fairly across companies.
T. Rowe Price policy
FOR shareholder proposals to have severance plans submitted for shareholder ratification.
T. Rowe Price policy
Generally, FOR
Mergers and acquisitions
T. Rowe Price policy
CASE-BY-CASE.
T. Rowe Price policy
FOR, where T. Rowe Price is supportive of the underlying merger proposal and the adjournment proposal is narrow in scope. AGAINST vague or open-ended proposals, or any blanket proposals containing a mention of "other business."
Socially oriented shareholder proposals
T. Rowe Price policy
It is T. Rowe Price policy to analyze every shareholder proposal of a social or environmental nature on a CASE-BY-CASE basis. To do this, we utilize research reports from our external proxy advisors, company filings and sustainability reports, research from other investors and non-governmental organizations, and our internal research analysts. Generally speaking, we support well targeted proposals addressing concerns that are particularly relevant for a company’s business and have not been adequately addressed by management.
T. Rowe Price Proxy Vote Disclosure
T. Rowe Price funds make broad disclosure of their proxy votes on troweprice.com and on the SEC's web site at http://www.sec.gov. All funds, regardless of their fiscal years, must file their proxy voting records for the most recent 12-month period ended June 30 with the SEC by August 31.