Good afternoon. Wow, that's loud. Or maybe it's me. Step back. Thank you for coming today. It's my pleasure to welcome you to the CarMax 2019 Annual Meeting of Shareholders. I'm Eric Margolin, the company's Executive Vice President, General Counsel, and Corporate Secretary. At the chair's request, I now officially call the meeting to order. With me on the stage, to my far right, is Bill Nash, President, Chief Executive Officer, and a member of the Board of Directors. Seated to my immediate right is Tom Folliard, the Non-Executive Chair of the Board of Directors. The policies and procedures for today's meeting are available at the registration desk in the back. I hope you took a moment to review them. There will be times today when we'll open the floor to comments and questions from shareholders.
We ask that if you wish to address the group, please step up to the microphone, provide your name, and limit your comments or questions to a total of three minutes. At the chair's request, I will serve as parliamentarian and timekeeper for the meeting. The Board of Directors has appointed American Stock Transfer & Trust Company as the inspector of elections for this meeting. Their representative, Steven Hoffman, is present today and is seated at the table in the back of the room. Items available for review at the inspector's table include the following: the oath of the inspector, the list of registered shareholders entitled to vote today, the affidavits of notice and meeting, and the minutes of the 2018 Annual Meeting of Shareholders. The inspector of election has informed us that there is a quorum present in person or by proxy for the transaction of business.
Also with us today are representatives from KPMG LLP, the company's independent auditors. Will you please stand? They are Andre Evans, Jerry Carlson, and Will Merton. They are available to respond to shareholder questions later in the meeting. I'd like to turn the meeting over to Tom Folliard, our Non-Executive Board Chair, to introduce the other members of the CarMax board.
Thank you, Eric. We have an outstanding set of director nominees. Their broad business experience is described in our proxy statement, so today I'll simply give you the length of their service on the CarMax board. I'll ask our board members to please stand as I call your names and remain standing until all nominees have been introduced. If possible, please hold your applause till the end. Pete Bensen has been a director since 2018. Sona Chawla has been a director since 2017. Shira Goodman, a director since 2007. Bob Hombach, a director since 2018. David McCreight, also a director since 2018. Bill Nash, a director since 2016. Marci Shinder, a director since 2015. Pietro Satriano joined the board last October. Mitch Steenrod, a director since 2011.
Ron Blaylock, who was unable to attend in person but is attending telephonically, has been a director since 2007, and I've been a director since 2006. Ladies and gentlemen, these are your nominees for election to the CarMax Board of Directors. Before I move on, let me just take a moment to thank Bill Tiefel. Bill, most recently, was our Lead Independent Director, has also served as Chairman of the Board. He is stepping down this year after many years of service to CarMax, and we greatly appreciate his counsel and his years of service. We will now proceed with the business of the meeting. I declare the polls open. Shareholders who have already voted by proxy do not need to cast ballots in the voting today.
If you voted by proxy and now wish to change your vote, or if you did not previously vote and would like to do so today, please now see the inspector of election at the back of the room. We have four items of business to bring before the meeting on behalf of the CarMax Board of Directors and one shareholder proposal. I will briefly review the proposal, I will request that the proponent for the shareholder proposal bring that item of business before the meeting. I will have Eric summarize the voting results on all proposals. The first item of business brought before the meeting is the election of directors. The board nominees, the following 11 director nominees: Pete Bensen, Ron Blaylock, Sona Chawla, Shira Goodman, Bob Hombach, David McCreight, Bill Nash, Pietro Satriano, Marci Shinder, Mitch Steenrod, and myself.
In accordance with the company's bylaws, the nominations are now closed. If any shareholder wishes to speak to this first item of business, please step up to one of the microphones. The second item of business brought before the meeting is the ratification of the appointment of KPMG LLP as the company's independent registered public accounting firm. KPMG served as our independent auditor for fiscal 2019, and the audit committee has again selected the firm to perform the audit of our financial statements and our internal controls over financial reporting for fiscal 2020. If any shareholder wishes to speak to the second item of business, please step up to one of the microphones. The third item of business brought before the meeting is the advisory vote on executive compensation. CarMax executive compensation program is designed to reflect the company's pay-for-performance philosophy and to support the company's key operating and strategic objectives.
The program is discussed in detail in the proxy statement, I refer you to this document for further information. If any shareholder wishes to speak to the third item of business, please step up to one of the microphones.
Chairman, my name is Jason Wheeler. I represent Carpenters Union Pension Fund that holds shares in CarMax. The Carpenters Pension Funds collectively have assets of $60 billion, and they hold 232,000 shares of the company's common stock. Mr. Chairman, as the say-on-pay vote is taken, I would like to ask the compensation committee's thinking on two aspects of the long-term equity awards and executive compensation plan. First, does the compensation committee consider the impact of the company's stock buyback program on the performance of the company's shares when determining the type and amount of long-term equity awards? Second question relates to the vesting schedule used for the stock options awarded to named executive officers. The proxy statement disclosure indicates that the four-year pro-rata vesting schedule focuses the executives on the company's long-term strategic goals. These vesting schedules seem short to be considered long-term compensation.
Could you or the chair of the compensation committee speak to the stock buyback issue and the rationale for the relatively short vesting schedule for stock options? Thank you, Mr. Chairman.
Sure. Thank you. Well, in the absence of the chair, I'll answer those questions. The first question What was the first question again? The buyback. The buyback is absolutely taken into account. We've been engaged in a buyback, buying back our stock in an effort to deliver equity back to shareholders and value back to shareholders. We've been doing that for a number of years, and it's absolutely taken into account, as is a number of other factors in determining compensation. That one is absolutely taken into account. The second one, the vesting schedule. The vesting schedule is 25% a year for four years on options. Remember that options are just a piece of long-term executive compensation at CarMax. We have other methods as well, which are also longer term. I think four years is a reasonably long period.
The options also expire after seven years. If you look at the behavior of most of the executives at CarMax over time, most people hold their awards into their fifth or sixth year, which I think is pretty long term. Thank you for your question. The fourth item of business Any further questions on that topic? The fourth item of business brought before the meeting is the approval of the amended and restated CarMax 2002 Stock Incentive Plan. The proposed amendments to the Stock Incentive Plan are each described in detail in the proxy statement. I refer you to this document for further information. If any shareholder wishes to speak to the fourth item of business, please step up to one of the microphones. The fifth item of business relates to a shareholder proposal for a report on political contributions.
If a representative from the International Brotherhood of Teamsters General Fund is with us today, please step up to one of the microphones to bring your proposal before the meeting.
Hello, this is Mike Pryce-Jones from the Teamsters. Very simply, our proposal, item number five, asks for more disclosure on the company's political corporate activity. You have relatively disclosed oversight, but what's absolutely lacking is discussion of or disclosure of the actual numbers. With political spending becoming even more critical and significant to investors, particularly after the Supreme Court Citizens United decision, it would just be good practice to go ahead and disclose these contributions. These proposals have been gaining more and more support. I think they're up about 10 percentage points this year to around 40% support. I think it's something you should be considering, and I urge other shareholders to support the resolution. Thank you.
Thank you. As noted in the proxy statement, the board believes this proposal is not in the best interest of CarMax or its shareholders, and we have recommended a vote against this proposal. If any shareholder wishes to speak to the shareholder proposal any further, please step up to one of the microphones. Given there are no further questions, the polls are now closed. Would the secretary please summarize the preliminary voting results on the applicable proposals?
Mr. Chair, on the first item of business, the election of directors, I'd like to note that CarMax has a majority vote standard for the election of directors. In an uncontested election as we have today, directors must be elected by a majority of the votes cast. This means that the number of votes cast for each individual director nominee must exceed the number of votes cast against that nominee. Any nominee not receiving a majority of the votes cast for their election will be required to tender his or her resignation. The Inspector of Election has informed me that the preliminary results indicate that each nominee for the board of directors has received the affirmative vote of at least 98.2% of the votes cast. Therefore, each nominee has been elected for a one-year term expiring at the 2020 annual meeting of shareholders.
The second item of business, the ratification of the appointment of KPMG, must be approved by a majority of the votes cast. The Inspector of Election has informed me that the preliminary results indicate that 98.3% of the votes cast have been cast in favor of the ratification, and therefore the ratification is approved. The third item of business, the non-binding advisory vote on executive compensation must be approved by a majority of the votes cast. The Inspector of Election has informed me that the preliminary results indicate that 97.5% of the votes cast have been cast in favor of approving the compensation of our named executive officers as described in our 2019 proxy statement, and therefore the compensation resolution is approved. The fourth item of business, the amendment and restatement of the CarMax 2002 Stock Incentive Plan must be approved by a majority of the votes cast.
The New York Stock Exchange requires that abstentions from voting be considered votes cast against this proposal. The Inspector of Election has informed me that the preliminary results indicate that 96.8% of the votes cast have been cast in favor of the amendment and restatement of the CarMax Stock Incentive Plan, and therefore the amendments are approved. The fifth item of business, the shareholder proposal for a report on political contributions must be approved by a majority of the votes cast. The Inspector of Election has informed me that 70.2% of the votes cast have been cast against the report on political contributions, and therefore the shareholder proposal has not been approved. Any valid votes made today in person from the floor will be reflected in the minutes of the meeting.
Thank you, Mr. Secretary. The annual meeting is now adjourned.
At this point, I'll turn the floor over to Bill Nash and he will give you a brief company overview.
Thank you, Tom. Good afternoon, everyone. It's a very exciting time right now for CarMax. You think back, we got into business in 1993 to change an industry and we've certainly changed the industry, but we've not only changed it, but we've led the industry and we're poised to continue leading that going forward. We call it driving what's possible. Driving what's possible is about execution and innovation. It all starts with execution, which means every time a customer walks in our door, they have to get an unbelievable experience. It doesn't matter if they're there to buy a car, sell a car, they're there for service, it doesn't matter. They get an unbelievable experience. Part of great execution is continuing to improve the business, making that execution better.
When you execute at a high level, you can then really focus on the other part of drive what's possible, which is the innovation side. For us, our focus has been kind of twofold under innovation. One is innovation for our associates, the other is innovation for our customers. For our associates, it's really been about technology and giving them technology that will allow them to do their jobs better, be more efficient for them to have more fun doing what they're doing. On the customer side, the innovation has really been around capabilities, digital capabilities, allowing customers to do more on their own terms so they don't have to just come into the store. We're going to continue to focus on both of those things as we go forward.
When I think about the omnichannel experience, the omnichannel experience can only be enabled by taking all that into consideration. We're taking 26 years of what we built, our great stores, our great associates, all the process. We're taking that and we're layering on top of it the new technology, the digital capabilities. That's what's really enabling the omnichannel experience, which is about giving every single customer an experience that's tailored specifically to them. That's the only way you can do it if you have all that working together. This is absolutely the future of where car buying is. Speaking of the omnichannel, recently, fourth quarter, we started to roll this out in the Atlanta market. Even more recently, this month, we opened up our first customer experience center in Atlanta, and we will continue to roll this as we go forward.
Now, with any transformation, there's lots of change, this is no exception for us. This is probably the biggest change that we've undertaken as an organization. The one thing that's not going to change are our values. Our values have been here since day one back in 1993. It's the same values which were a big reason why I came to work at CarMax back in the '90s, it starts with doing the right thing. That's why we got in the business. We got in the business to treat people the way they should be treated. Treating our customers and our associates and the communities the right way. It's a people first focus, focusing on people. That's our associates and investing and training and developing them and giving them opportunities to grow. It's our customers and again, it's our communities. It's winning as a team.
CarMax isn't successful because of a small group of people. It never has been. CarMax is successful because of the collectiveness that makes up CarMax. Today, that's more than 25,000 associates. It's not only that collectiveness, it's all the differences that we bring to the table and how we embrace those differences. Last but certainly not least, is this whole idea of going for greatness. We got in this business to change an industry, we're going to continue to do that. We're on the cusp of changing the same industry for a second time. It's these values that have made us successful and these values that will continue to make us successful as we go forward. I want to make sure that I thank all 25,000 plus of our associates because they're the ones that live these values every day.
They're the ones that protect these values. They're the ones that deliver an exceptional customer experience day in and day out. I always say they are the differentiator for CarMax. They made us successful for the last 26 years. They'll make us successful as we go forward. I'd also like to thank and acknowledge the board for their leadership and guidance. It's been critically important, especially as we continue to grow and grow in different ways. I thank them for all their support. Shareholders, thank you for your interest and continue to support us. Last but not least, I want to do a personal recognition of Katharine Kenny, who's in the back of the room. Katharine, if you could just kind of wave to folks. Katharine has been with CarMax for 13 years.
She's been responsible for running our investor relations team and has done a phenomenal job the last 13 years. In the IR world, Katharine is definitely varsity. She is top tier. I've learned a tremendous amount in this role from Katharine. I'll miss our road trips, so I'm sad to see her go. Katharine, I hope you have a great retirement, one that exceeds your expectations, and thank you for everything that you've done. At this time, I'd like to open up the floor to questions. Any shareholder who would like to ask a question may step up to the microphone.
Dude, didn't want to let you off too easy.
Okay.
One question. Thank you all for being here. My name's Jonathan Lyles. I actually live in Manakin-Sabot, just down the road. I'm an original shareholder. I got my shares through the spinoff from Circuit City, formerly known as The Loading Dock, but we don't need to go back that far. I am thrilled to have you as a corporate neighbor here in Goochland, and I've noticed that several of the recent corporate expansions have not been in Goochland. Is there something us country boys can be doing out here to keep you on the campus and not straying too far from the farm? Is there something that we're not doing right?
From one country boy to another country boy.
Yes, sir.
It's a great question. We do have about 200 acres out here. Some of it is unbuildable. Our strategy has been anytime you look to open up an expansion on your corporate park, you want to make sure that when you open it's not only partially full. You want to make sure that you maximize it. The strategy that we've taken, we actually have plans drawn up that would allow a couple other buildings here. Our strategy at this point is let's make sure we get to a critical mass. The first solution was to go downtown into the Shockoe Bottom. We did that for two reasons. One was, we use it as a bridge to actually get to a point where we can fill a building out here.
Two, it was also a great play for us because of the type of talent that we were attracting. We wanted to mix it up a little bit and take it downtown and have a different environment, and it's worked well on both fronts. We have certainly not abandoned Goochland, and we have plenty of land out here to continue to evaluate for the future.
Appreciating your hard work, gentlemen, don't realize that Hardywood Brewery has opened up out here.
That is called the CarMax Annex on Friday afternoon.
Rumor has it that Innsbrook After Hours is going to become Goochland After Hours.
Is going to become what?
Innsbrook After Hours.
Innsbrook After Hours?
Coming out this way, at least that's the rumor rising. Yeah, if you can get those expatriates back from Shockoe Bottom, that would be great. Thank you.
Okay. I appreciate it. Thank you for your question. Any other questions?
A topic that has received growing interest in the business press and at leading business schools is the growth and the size of the ownership interest held by mutual funds, particularly passive index funds. BlackRock and The Vanguard Group, along with others, each own in excess of 5% of the company's outstanding shares. Could you speak to your view of the growing concentration of institutional investors' ownership and its impact on corporate governance and competitiveness? Specifically, does the increasing concentration of ownership by passive investors aggravate short-termism in the market, or alternatively, enable companies to take a longer-term strategic perspective? Also, are there potential conflict of interest issues that average shareholders should be concerned about, given that these same investment companies are involved with the administration and investment of corporate retirement funds at companies where they hold large ownership positions? Thank you.
Thank you for your question. Yes, we do have a couple of those as our top shareholders, but they've been great shareholders, and we work with them both to educate them on what's going on in the business, but we also work with them from a governance standpoint. We've been thrilled to have them as shareholders. As far as the short term, do they focus you on the short term?
Look, we've always run this business from a more long-term perspective, and I think the dialogue that I've given over the last year and a half about how we're running our business shows that, while there is a push out there on short term, which doesn't necessarily just have to come from those folks, it comes from other folks, we run the business on a longer term, and we don't get too caught up in quarter to quarter because we know where we're going long term. We appreciate all of our shareholders. Any other questions?
Patrick Léger from Giverny Capital in Montreal, Canada. Just a question around, if I can ask what has been the most surprising to you, both on the upside and downside with omnichannel, things that were unexpected and as you begin to roll out in Atlanta, the things you didn't expect.
Yeah, no, it's a great question. I would say one of the things that surprised me when we decided to go to Atlanta, we entered the market with a different offering in that we don't deliver a car that's been bought, we deliver a test drive. One of the things that surprised me, one of the things I was personally worried about is, hey, our competitors make you buy the car before they bring the car to the customer. One of the things I was concerned about, how many customers are just going to tell us, "Hey, bring us these cars," then they get there, "Oh, I don't like that color," or, "I don't want that one, bring me another one." Truthfully, I've been pleasantly surprised. We have not had one instance of that. The driveway conversion has been very high.
That's probably the biggest surprise for me. Omnichannel, we've been working on this for several years, we've been doing it in different markets, different pieces, making sure that when we came to the Atlanta market, we had something that we were excited about, it was representing. There weren't any big major surprises. I will tell you, I am a firm believer that this is the future of car buying, this is where customers are going, whether they know it today or not, we want to make sure that we lead the pack. I also think that there'll be lots of competitors that won't be able to make this transition. It's a highly fragmented marketplace right now. I think in the future, there just won't be as many folks that can deliver an experience like this.
I think consumers one day will wake up and say, "If I can't get an experience like this, you're no longer relevant." We want to be relevant. Thank you for your question.
Jeremy Kirkland, Redmond Asset Management here in Richmond, Virginia. I asked Tom a few years ago about a long-term potential risk or change in the environment, that had to do with autonomous driving cars. How much does that enter into your long-term strategic thinking and-
No, it's a great question. I tell you, a few years ago when you asked Tom about it, I can tell you the marketplace said it was going to be here in the early 2020s. I think if you talk to the folks that are actually involved in that technology now, they're like, "No way. It's going to be a little ways out." That being said, we want to make sure that we position ourselves today to be able to take advantage. I think about the automotive industry and where we are today. It is super exciting because there's so much going on. I think the change that we see over the next five to 10 years is really going to be truly remarkable. I think it's going to first take form with electric vehicles.
I think electric vehicles really need to succeed for the autonomous vehicles and ride-sharing. It's like those three have to kind of all come together because ride-sharing isn't going to make money unless they can get rid of the driver. They need the autonomous vehicle, and the autonomous vehicle needs the electric vehicle because it's going to be on the road all the time, and a gas engine has too many parts. I think they're all hinged very closely together. I think for us, materially impacting us, we're years, if not a decade away. We have a team today, a small team, that actively looks at the future and what do we want to be when we grow up.
Make sure that we position ourselves today so that we can take advantage of any type of environment, whether it's autonomous vehicles or there's more EVs or ride-sharing. We want to put ourselves in the best position to capitalize on that. We're thinking about it today, I would tell you, it's not going to have a material impact on the business anytime soon.
Thank you.
Thank you. Any other questions? All right. Seeing no more questions, that concludes the meeting. I would invite you, I think we have some cookies back there in the back, please help yourself. Again, thank you for your interest and support in CarMax.