Good morning, everyone, and welcome to Mastercard's 2017 Annual Meeting of Stockholders, which I now call to order. My apologies for the slightly late start, we did want to ensure that all shareholders who wanted to attend were able to get to their seats. I'm Rick Haythornthwaite, Chairman of the Board of Mastercard. Seated at the table is Ajay Banga, our President, CEO, and a fellow director. I'd like to thank you for taking the time today to join us, either here in person or by audio. A special thanks for all your hard work to any of our valued employees who may be listening in. We have several items of business to cover this morning, let's turn right to the formal business of the meeting.
The agenda and rules of conduct were provided at the registration table, I would like to ask for everyone's cooperation in respecting the rules for today's meeting. In particular, please hold any questions or comments until the designated question and answer session. I'd like to introduce the rest of the director nominees who are seated at the front of the auditorium. If I could ask each director nominee to stand when I introduce you. The director nominees are Silvio Barzi, former Senior Advisor and Executive Officer for the UniCredit Group. Dave Carlucci, the former Chairman and CEO of IMS Health Incorporated. Steve Freiberg, Senior Advisor to the Boston Consulting Group. Julius Genachowski, Managing Director and Partner of The Carlyle Group. Merit Janow, Dean of the School of International and Public Affairs at Columbia University. Nancy Karch, Director Emeritus of McKinsey & Company.
Oki Matsumoto, Managing Director, Chairman, and CEO of Monex Group. Rima Qureshi, former President of Ericsson North America. José Reyes, former Vice Chairman, Coca-Cola Export Corporation at The Coca-Cola Company, Jack Tai, former Vice Chairman and CEO of DBS Group and DBS Bank. In addition, I'd like to introduce our Corporate Secretary, Janet McGinnis, who is standing in the front of the auditorium. Several members of our senior management are also seated in the auditorium, including our Chief Financial Officer, General Counsel, and Chief Human Resources Officer. Bob Clem and Lee Estlin, representatives of PricewaterhouseCoopers LLP, our independent registered public accounting firm, are also present. We are all available to respond to your questions in due course. We have designated Anne Meyer of [Jordens] as Inspector of Elections for this meeting, Ms. Meyer has taken the oath of office. Let's turn to the business of the meeting.
I have a copy of the notice of the meeting, together with an affidavit of mailing, the proxy materials made available to our stockholders of record as of April 27th, 2017. A certified list of stockholders as of the record date is available for inspection. Our Inspector of Elections also has certified that there is a proper quorum for this meeting. All of these documents will be made a part of the minutes of this meeting. With that, this meeting is lawfully convened, we're now ready to transact business. There are six proposals to be voted on today, each of which is described in our proxy statement, including the vote required to approve each proposal. The five matters presented by management are, first, the election of 12 nominees for director. Second, the advisory approval of our executive compensation.
Third, the advisory vote on the frequency of future advisory votes on executive compensation. Fourth, the re-approval of the LTIP performance goals for Section 162(m) purposes, which we'll call our LTIP proposal. Fifth, the ratification of the appointment of PwC as our independent registered public accounting firm for 2017. The board recommends that stockholders vote for each director nominee, for annual say on pay votes, and for each of the three other management proposals. In addition, a stockholder is presenting a proposal on gender pay equity. We welcome Natasha Lamb, a representative from Arjuna Capital, the lead proponent of this proposal, who is here to present it. Ms. Lamb, we appreciate your interest in our company. The floor is yours.
Good morning, Mr. Chairman, members of the board, and fellow shareholders. My name is Natasha Lamb, and I'm here to move proposal number six, filed on behalf of Arjuna Capital's client, Elaine Alexander. Specifically, we are asking the board to publish a report on the company's policies and goals to reduce the gender pay gap. The median income for a woman working full time in the U.S. is reported to be 79% of that of her male counterparts. Forecasts indicate that at the current rate of change, women will not reach pay parity until 2059. Of note, African American and Latina women is wider at 60% and 55% respectively. Gender pay disparity is not only one of the biggest social justice issues of our time, it poses a risk to companies' performance brand and investor returns.
This issue is particularly salient to the financial industry, which struggles to attract and retain female talent, as well as the technology industry. In fact, women executives are 20%-30% more likely to leave a career in finance than any other career. While Mastercard has not reported its company-wide pay gap, PayScale reports the company has a mean salary pay gap of 15%, over $13,000, and a 20% gap over $23,000 for top earners. Research indicates gender-diverse teams are more productive, innovative, and drive better results. Clearly, a failure to attract and retain qualified female employees is detrimental to Mastercard's ability to innovate and compete. Mastercard has disclosed that 40% of our company's global workforce is female, yet 25% of our leadership is made up of women.
Our company is best served by a proactive approach to address the structural biases, including pay inequities, that prevent women from entering and staying in the field and from moving into positions of leadership. Given the material business risk gender inequity presents, investors expect transparent, honest disclosures and quantitative goals, employees expect a new level of structural support that addresses root causes and empowers fair negotiation, promotion, and ultimately equal pay. Implementing the proposal would represent a proactive step toward closing the gender pay gap. We believe the company would benefit from taking a leadership position on this issue, along with financial services peers Schroders and Virgin Money, S&P technology peers, including Apple, Microsoft, and Expedia, as well as others. Research indicates, attracting and retaining diverse teams yields strong financial performance benefits. Thank you.
Thank you, Ms. Lamb. For the reasons set forth in our proxy statement, which have nothing to do with your ambition but everything to do with your recommended reporting remedy, the board recommends stockholders vote against this proposal. Because we received no timely notice of any other nominations or business to be considered at this meeting, these six agenda items are the only matters to be voted on today. If you've already submitted your proxy, your shares will be voted accordingly. If you brought your proxy with you or obtained a ballot at the registration desk that you'd like to submit, please provide it to the Inspector of Elections, Anne Meyer. If there is any stockholder present who has not yet voted and needs a ballot, please raise your hand so we may distribute a ballot to you.
If you have previously voted by proxy, please do not fill out a ballot unless you wish to change your vote. After we close the voting polls, we will announce the preliminary results of the voting on each of the proposals. Time is now 8:48 A.M. on June the 27th, 2017, the polls for voting are now open. Janet will vote one or more ballots representing all votes cast by proxy before the meeting. While the polls are open and we wait for any ballots to be completed, Ajay will share some thoughts on the company. Before he begins, let me remind you that his presentation and the Q&A that will follow may include some forward-looking statements about Mastercard's future performance.
Actual performance could differ materially from what is suggested by our comments today, information about the factors that could affect future performance is summarized in our recent SEC filings.
That's what Rick was just saying. Thank you, Rick, good morning, everybody. It's great to see you all here in Purchase, welcome to those of you who are joining our webcast. I'm going to spend the next few minutes walking you through the highlights of our business. Back in January, we reported our performance for the year 2016. By the numbers, Mastercard had a very strong year. Our net revenue increased 11%, or 13% on a currency-neutral basis. For the year, EPS increased by 10%, or 11% on a currency-neutral basis, excluding special items, or 19% when normalized for taxes. Over the last five years, net revenue has grown at a cumulative average growth rate of 10%. Adjusted diluted EPS has grown at 15%, total shareholder return has grown at a compounded annual growth rate of 23%.
Our 10-year annualized total shareholder return has been 27%, which, according to the Fortune list of the Fortune 500 latest issue, is the number 4 in the list of ranking. This strong operating performance and the solid fundamentals that underlie our business continued into the first quarter of this year. In the coming weeks, we'll be reporting on our financial performance from the second quarter, which comes to a close on Friday. To us, this sustained performance means many different things. It's about having products and solutions that our customers and their consumers want. It's about having the right relationships in markets across the globe. It's about delivering on our commitment to drive value back to you all, our shareholders, while also delivering value to society. That last part is why you see us focusing so much on inclusive growth and financial inclusion.
In the last four years alone, we have returned more than $15 billion to shareholders through dividends and through share repurchases. Of course, during that time, we have regularly increased our dividend. These actions are balanced with the investments we make in our people and products to expand our business. For those of you who attended investor meetings or shareholder meetings in the past, you've kind of heard me consistently talk about the overarching objectives of our business, those are to grow, diversify, and build our franchise, enabled by those foundations of our brand, data, technology, and our people. We focus the largest amount of our time on what we talk about as growing the core of the business.
People and businesses rely on their credit, debit, and prepaid today cards, but it could be any form factor, to make purchases simply and safely everywhere they see our brand. At the same time, technology is changing how the pillars of credit, debit, and prepaid come to market. Every device you have, a phone, a tablet, a refrigerator, a car, even your fingerprint, has the potential to become a way to make or potentially receive a payment. We're determined to lead in that space and that area. We are and will continue to be partner-centric. For a number of years, we've invested in our merchant relationships, accelerating the growth of our network in a way that delivers value to all partners. We continue to focus on expanding the acceptance of our products, both in-store and online. We're also working with digital players, with merchants, telecom companies, transit authorities.
It's a new range of players who help us reach consumers through different use cases. Of course, we're building new businesses. Our advisors business is delivering value beyond the transaction. We're helping merchants become more efficient, make better decisions, increase conversion rates. We're spending a significant effort to deliver a competitive difference for Mastercard. The activity on our network powers insights and services that help businesses get things done. It can be by delivering safety and security or loyalty and rewards on every device. It's about building off the core relationship. That's how grow, diversify, build hangs together as what we're trying to do. This past year, we announced the acquisition of VocaLink, the closure of that transaction happened in the course of the first half of this year.
We believe VocaLink is another example of where we will add to the foundation of a strong card-based retail payments business. We are pleased to have recently closed on that acquisition. They add key platforms to the foundation, including real-time account-to-account faster payments or what the industry refers to as fast ACH. The combination of card payments and bank account-based payments will enable us to take a more holistic approach to retail, to P2P, that's the peer-to-peer, and B2B, business-to-business payments. Our customers will basically be able to turn to one partner to address their payment needs across the whole spectrum, from cards to ACH. With that as a foundation, we're kind of looking forward and looking ahead. That starts with our people and having world-class talent across our business in every market and at every level of the organization.
Our employees are our greatest strength, they're committed to the business like they own the place. Actually, they do because they're all stockholders like you are. It's their passion and dedication that make things like Masterpass, mobile payments, World Elite, Priceless, all these things you see us doing in the market. It's that passion and dedication that makes those a reality. Our industry, fintech more broadly, is different than it was just a few years ago. We are working with new types of partners, including startups and non-traditional players. That's why we are using our open API platforms to help new and emerging players connect to our products.
We've got programs like Start Path, which are focused on identifying early-stage companies around the world and connecting them with internal expertise in our company to help develop pilots so they can in turn become part of the innovation engine of our society. If technology is going to make the Internet of Things a reality, we need to continue to make payment security even more safer. That's a peculiar way to say it, but we need to make payment security more safer than it is today. The point is this security will come down to three things: preventing an attack, detecting it if they do get through, and when it does get through, shut that down once you've detected it. That's what we're working very hard on. Confirming the authentic identity of the buyer will be the imperative.
This is where biometric cards and selfie pay and artificial intelligence come into play. Our Decision Intelligence service, which by the way, uses artificial intelligence and machine learning, strengthens the layers of security, our acquisitions. Like our recent deal for NuData Security will also play a role here. We also continue to work across the industry to drive the creation of EMV token and QR standards to ensure a consistent experience and a way of working. We are going to stop there because all of this actually is invisible to the consumer, but it delivers the trust that they require and they justly demand. We know there is much more opportunity in front of us, and we'll continue to execute on the strategy to address these opportunities and deliver long-term success to you all and to our employees.
Look forward to updating you on our progress periodically. I appreciate your continued support. Thank you for that very much. Rick, I'll turn it back to you.
Thank you, Ajay. At this time, if you would please raise your hand if you've completed a proxy or ballot, and Ms. Meyer will collect it. Now while the vote is being tabulated, we will open the floor for questions and comments about the six proposals as well as the business update. Please direct all your questions to me. If you would like to ask a question, please stand, wait until you're recognized, then use the standing microphone in the middle of the aisle. Sir, certainly, if you have a question at the back, we'd be very happy to bring a microphone to you. Please, are there any questions? Yes, sir. Could you please let the gentleman out to the microphone? Thank you. Okay, good.
Actually, it seems I've got one.
Yeah. We have prayed for the audio. We got one coming through here. There are people listening in to the webcast.
I have a comment which results in a question. Let us assume that cryptocurrencies gain the upper hand in the years to come, and let us further assume that Bitcoin is the winner among them. How will this company and our service and our product handle the situation?
That's a very good question, a very contemporary question. Ajay, do you want to pick this up?
Let me just say further, let us hypothesize that the bulk of all currencies in the world become Bitcoin.
I do hope that's not the case because I think Bitcoin has many design flaws in terms of knowing your customer and anti-money laundering, and I believe that's what keeps our financial system safe and secure. Let's put all that aside because your question says put that aside. If you start from having put it aside, then the issue is for us, we handle 200 currencies today. Currencies are essentially a form of value exchange. A Bitcoin or any other cryptocurrency, irrespective of the technology that underlines it, is essentially a form of value exchange.
Long as we can participate in that form of value exchange by providing for the Bitcoin to be just like a US dollar or an Indian rupee or a Japanese currency, there's no real impact to what role we could play in enabling buyers and sellers or people transferring money to people or businesses transferring money to businesses to correlate and connect. That's the role. Our role is not dependent on a dollar or a yen. It's dependent upon the value exchange flowing over the rails of our technology and our capability there. That's what we have to fight for, always staying good in the technology, good in the value-added services, then go to whichever form of value exchange is being mandated by the customers using it within the rules of law that apply.
Other questions or comments.
Hi there. I had a couple of questions. I'm [inaudible]. One was on the core business, and one was as it relates to the capital allocation policy of the company. On the core business, whether it's that gentleman's question about cryptocurrencies, fast ACH, there's clearly a lot of disruption happening at the current moment. I would love to just get your perspective on the ability to continue to deliver revenue growth as we've seen it over the past many years, prospectively in the face of things that might create some more headwinds. Then secondly, from a capital allocation point of view, it seems as though we have emphasized share repurchases over the past five, six years, and I think I've been a big advocate of that.
The market has gone up significantly and Mastercard's valuation has been more appropriately reflected in the market, I'm curious whether that still remains the best use of the firm's capital from your point of view and how you think about framing all of that.
The good news is that this particular shareholder is consistent in his questions. I've seen him for a few years now. The first one is the first question on how the market's developing and how we could sustain our value in that marketplace. First of all, headwinds and tailwinds are a reality of this kind of market. They've only become quicker and faster and more volatile over the last five, seven years because of the speed of technological change. I do believe that will continue to be the trend. If anything, that speed may actually accelerate, although I'm not sure. I do believe that we should prepare for that. My perspective on remaining in that game is that as you've seen over the last few years, we've kind of been able to work even with players who earlier were seen as completely disruptive.
The story around being disruptive to the payments industry applies to certain players in the ecosystem, but not necessarily everybody each time disruption is discussed. Let's take e-commerce wallets, for example. When they were being discussed a little while ago, there was a great deal of speculation that the digital players would find a way to disrupt the industry in a form that did not enable the current players to extract value from the payments value chain. Over the years, that's been proven to not be quite correct. Again, I wouldn't declare any change because it may change in the next five years. You got to be ready for that.
What we do is try and make sure we are bringing the right rails and right infrastructure for those players to need us to reach billions of consumers and millions of merchants through 20,000, 30,000 banks in 200 countries with all the legal local regulations built into our system. That's not a small task for someone to try and replicate. If all you do is rely on that one aspect, you will be caught at some point of time. As you know, the idea is to be agile and mobile in terms of developing new technology and helping in turn to enable the right choice for those customers and consumers. The acquisition of VocaLink is exactly aimed at that point. I believe that fast ACH, old-fashioned ACH had challenges, still grew.
Fast ACH is a whole new space. I believe that between regulatory permission to go forward with that, in fact, encouragement in some markets, combined with some of its feature functionality that's quite attractive, even though it may not be as attractive as some of the card rails, it's got a great deal of attraction, combined with economics that look different when you take a first look at them. This is going to grow and drive. We want to be part of that. That's why we've put a bet down on buying VocaLink. It's the only fast ACH and ACH provider that operates in multiple countries. My point in all this is we're cognizant of the fact that the market's moving. We don't plan to stay where our moat is.
We plan to move along with that marketplace, sometimes ahead, sometimes following, depending on what makes business sense. On your capital allocation point, first of all, I'm a firm believer that the Mastercard stock price has more to go. Therefore, I disagree with the premise that this would be a time to look at that differently. Having said that, our regular allocation of capital starts from the first premise of holding a certain amount of capital and cash available to manage the risks of our business. That's the first allocation. The second allocation is to everything we need to do to grow, diversify, and build our businesses.
If you look at the number of acquisitions that our company has done over the last seven, eight years compared to our leading competitor, who is somewhat bigger than us, you would find a very different focus on using our capital for acquiring assets and capabilities and skills and geographic coverage that we may not possess today. Hence VocaLink and hence NuData, and hence Travelex prepaid. Travelex goes back a long time. Hence other such entities, right? That's the idea of using that capital. Once we've got ourselves ready for that, given the nature of our industry, the number of acquisitions available of any larger size tend to be somewhat limited. It's just the nature of the place. That gives us the chance then to put money either into joint ventures or investments for startups and the like, or dividends and share repurchases.
It actually flows exactly like that because we believe we're in a growth industry and providing first for our risks, second for our growth, and third, to return the capital to you so you can reinvest it in a form that you think appropriate. That's our capital allocation.
Further questions will come.
Thank you. Natasha Lamb. Mastercard sort of sits between the technology and finance worlds. What we've seen over the last couple of years is that many technology companies have started to disclose their gender pay gap and commit to close it. We've also seen global financial services firms start to do the same. I'm curious why there's hesitancy on the part of the company, why the company isn't disclosing this number when investors are viewing it as a competitive issue in terms of attracting and retaining top talent.
Well, thank you very much for the question and follow-up. Let's make one thing clear, that every man and woman in Mastercard gets equal pay for equal performance in an equal job in the U.S. and globally. If you deconstruct sort of metric you're talking about, this is really a question about our ambitions and pace of driving diversity through the company. We believe fundamentally in diversity. You just have to look around the board and look around this room. We believe in diversity. We believe it drives better ideas, better dialogue, better decisions. Do we think that just over 30% ethnic diversity is sufficient? Do we think 40% gender diversity in the company is sufficient, or 28% in senior management, 25% of the board? No. We're not resting in that.
We have numerous initiatives around the company from the top through the organization. We're recognized for them. We're the top 10 in DiversityInc. We're recognized by Bloomberg as best in class in terms of the practice we bring to making opportunities available to women. In other words, we have processes. Our question is, what is the best way of doing this? In our proxy response to your recommendation, your proposal, we're simply saying we don't think a further report with this particular metric will accelerate the already substantial efforts that we have in the company. That's simply the reason behind the response. Therefore, we recommended that you vote against recommendations of shareholders. We just don't think it is in the best interest of all of our shareholders. A simple statement there. I come back to what I said in my text there.
This is nothing about the ambitions. We truly share the ambitions. It's just our interpretation of how do you get this done? Recognizing it's not a simple journey, how do you best get it done? That's what we as a board, as your board, are most concerned about.
Think that investors expect transparency and accountability on the issue, and that has everything to do with the disclosure?
Our belief is that everyone should expect transparency. We believe transparency on metrics that actually make a difference and inform. Our view here is that we beg to differ on what makes a difference in terms of transparency and informing shareholders as a whole and what best drives initiatives in this area.
One of the statements you made at the beginning of your comments was that you pay men and women the same, equal pay for equal work. Obviously, that's the metric that we're looking for. If that number is 100%, can you say that it's 100%?
I'm getting to the point where I'm going to refer to my previous answer. I think we've made our position clear, and we will press ahead with any initiatives. If at some stage we think that it's worth adding another set of metrics to inform shareholders and demonstrate how we are moving in the direction, and indeed whether or not we think there are metrics that will drive our change program faster, we will let everyone know. Until such time on this particular recommendation, we've recommended that people vote against.
Thank you. Well, we look forward to a continued conversation if you're open to that.
Yes. Thank you for raising it. It's an important issue, and I think the debate is the right debate to be had. As long as we can all respect our different views in these areas, let's keep the conversation going. Thank you. Yes, sir. Please get a microphone to the gentleman in the back. Oh, you got one. Sorry. There you go.
I have two things to say. One, I'm handicapped, and I was appalled that I had to walk a half a mile to get to the entrance. I think you could do better than that.
Sir, I apologize on behalf of the company.
My second question is, of all the new methods of payments, I have owned several small businesses. Of all the new smaller methods of payment, I find the guys who run these businesses for me are very uninformed about the new methods of payments, for whatever the reason. I'd just like to say, I think you got to do more education. My other statement is, what percentage of the old style run-of-the-mill cards now being replaced by these newer methods, in your Apple phone, using your Bitcoin or whatever. How fast is that changing?
Thank you. Well, certainly, we're doing an awful lot for small- and medium-sized businesses. Ajay, do you want to pick up what programs are doing that and talk about the percentages shifted to new methods? Thank you.
In context of the total credit retail payments, that is person to merchant. Let's forget about business to business for a minute. Person to merchant, if you took the total market in the world, 85% of it is still cash, first of all. Only 15% is non-cash in the form of either a card or a digital payment. Of that 15% that is non-cash, the non-credit card or debit card or prepaid card or purchasing card kind of card payment-based systems, that is everything digital, as well as all of e-commerce is minuscule, completely minuscule. I mean, to give you an example, in the United States right now, e-commerce is 7% of retail transactions. Digital payments in the form of Apple Pay and the like are less than a percent.
Having said that, the growth rate of e-commerce payments is sometimes two to three times that of physical in-store payments. I don't believe you should think that seven will stay seven for another 20 years. It will not. It's growing with some degree of rapidity. Nobody knows where it'll settle down. I can give you an anecdotal example of the gentleman who runs Alibaba, Jack Ma. He once said to me that when China reaches 30% of payments in the form of digital, including card as compared to cash, he would think they have really reached nirvana. I think there's some natural balance right now in some of these markets, and even in the United States, cash is 50% of retail payments. In the developed world, countries like Japan and Germany, with a high-tech, high-quality infrastructure, cash is still 70%-75% of retail payments.
I actually view our competition as being not just my traditional competitors who are networks or what could come with a Bitcoin or a digital payment as being disruptive, even if we are the enabler of that disruptive and maybe revenue streams. I view cash as the real competitor for the company and for its opportunities into the future. May I add my chairman's regrets about your difficulty in getting here. That's something we need to fix, and I'm sure it'll be done better for you the next time you're here.
We know the gentleman's comments about needing to inform small businesses better, perhaps you'd like just pick up a quick note on where we are on that.
The idea of educating small businesses on alternative payments is important, I think the real challenge is how do we go about getting that education done. The education is only worth it if you have all the right tools to enable them to change the way they're currently interacting. In different countries, we use different channels to get to those small businesses. In the U.S., we're actually building a whole network of capabilities with a company called AvidXchange. We just announced the fact that we're going forward with them to enable a trade directory to be built for businesses like the ones you're referring to get listed and enable them to accept payments and receive payments through many different channels. That's the kind of product repertoire we're trying to build. Grow with that.
Over the last five, seven years, our so-called commercial business, which includes these kinds of examples, has grown at a revenue rate that is sometimes one and a half to two times the revenue rate of our total company, it's off a smaller base. I believe the refocusing of our company from only focused on retail payments to also adding a great deal of emphasis on business payments is part of our future growth story.
Thank you. Are there any more questions or comments? Very good. Well, thank you for your questions. Let's now turn to the voting results. All ballots are now in the custody of the Inspector of Elections. It is now 9:15 A.M. on June the 27th, 2017, I now declare the polls closed. Janet, do we have the results of the vote?
Yes, Mr. Chairman. Based on the Inspector of Elections' preliminary vote report, there were present at the meeting, either in person or by proxy, 949,187,063 shares. That's 90% of our shares, by the way, of our Class A common stock, which represents a quorum for all matters to be voted upon.
Thank you. Based on these preliminary results, each director nominee has been elected. Our executive compensation has been approved on an advisory basis. One year has been selected as the frequency of future advisory say on pay votes. The LTIP proposal has been approved. The ratification of the appointment of PwC for 2017 has been approved. The proposal on gender pay equity was not approved.
The Inspector of Elections' preliminary vote report that I've used will be certified following the meeting. We will publicly report the final voting results on a Form 8-K. The Inspector's final report will also be filed with the meeting minutes.
Thank you, Janet. As there are no other matters, this meeting is adjourned. Thank you again for your support of Mastercard. We look forward to another great year. Thank you very much indeed.