Good morning, ladies and gentlemen, and welcome to the PayPal Holdings Inc. 2019 Annual Stockholders Meeting. I would now like to introduce to you Mr. John Donahoe, Chairman of the Board of PayPal Holdings Inc. Mr.
Donahoe, you may begin.
Good morning, and welcome to the 2019 Annual Stockholders Meeting. I'm John Donahoe, Chairman of the Board, and I'll be serving as Chair of this meeting. I'd like to introduce the other Board members who are participating in today's meeting. Dan Shulman, who also serves as our President and Chief Executive Officer Rodney Atkins, Wences Casares, Jonathan Cristadoro, David Dorman, Belinda Johnson, Gail McGovern, Debbie Messimer, David Moffett, Anne Sarnoff and Frank Urie. In addition to Dan Shulman, other members of PayPal's senior leadership team participating in today's meeting are John Rainey, Chief Financial Officer Wanji Walcott, General Counsel Gabrielle Rabinovich, Head of Investor Relations and Brian Yamasaki, Corporate Secretary.
A representative PwC, our independent auditor is also present today and will be available to answer appropriate questions during the question and answer session of the meeting. I would now like to call the 2019 Annual Stockholders Meeting to order. I'll be serving as Chair of the meeting and Brian Yamasaki will serve as the Secretary of the meeting. I will now turn the meeting over to Brian to begin the formal matters to be discussed at this meeting. Thanks, John.
Before we begin, we want to state that we're excited our Annual Stockholder Meeting is being conducted virtually through a live audio webcast. By holding a virtual meeting, we're enabling stockholders from around the world to attend and participate in our annual meeting, which allows for increased access and participation at no cost regardless of a stockholder size, resources or physical location. We've also adopted a series of safeguards that we believe provide all stockholders the same rights and opportunities to participate in this meeting as they would at an in person meeting. We've established clear processes around submitting and responding to stockholder questions and members of executive management and the Board will be available for today. We have also committed to posting our questions and answers on our Investor Relations website and the meeting website as soon as practicable after the meeting.
We've engaged with our investors and solicited feedback on the virtual meeting format for our annual meeting. Following this meeting, we will consider any additional feedback from our stockholders on the meeting format and we'll continue to work to enhance the meeting experience going forward. We are conducting this meeting in accordance with our bylaws and the meeting rules of conduct and procedures. The meeting rules and agenda are available on the meeting website. As a reminder, stockholders attending the virtual meeting can vote their shares online from now through the closing of the polls by logging into the meeting website as a stockholder and clicking the Vote Here button on their screen.
If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you previously instructed and no further action is required. We will begin by attending to the formal business of the meeting. After the formal meeting is adjourned, Dan Shulman, our President and CEO, will provide a brief presentation on our business. Following that, we will hold a question and answer session. We have received several questions that were submitted by our stockholders in advance of today's meeting that we will address during the Q and A session.
Stockholders logged into the meeting website will be able to submit questions by typing them into the text box on the meeting website through the end of the Q and A session. If you have a specific question about a specific PayPal product or your customer account, please feel free to send those questions to the following e mail address, stockholdercustomerquestions, one word, paypal.com. Finally, please note that the meeting is being recorded and will be available for replay on the meeting website for 90 days. This meeting is held pursuant to the notice of annual meeting that we began mailing on April 10, 2019 to all stockholders of record as of the close of business on March 29, 2019. We have received an affidavit of mailing from Broadridge indicating that notice of the meaning has been duly given.
A copy of our proxy statement is available on PayPal's Investor Relations website and the Securities and Exchange Commission's website at www.sec.gov. The Inspector of Elections has confirmed that proxies have been received from nearly 90% of the nearly 1,172,000,000 shares of the company's outstanding stock entitled to vote. I declare that there is a quorum present. Accordingly, the meeting is duly constituted and we may now proceed with the business of the meeting. As John indicated in his introduction, the polls are open for voting.
We will close the polls after the proposals have been presented. There are 5 items of business to be voted on at this meeting. The first item of business is the election of 12 director nominees to the Board of Directors, each to hold office until the 2020 Annual Meeting of Stockholders or until their successors are duly elected and qualified. The nominees for election to the Board of Directors are Rodney Atkins, Wences Casares, Jonathan Cristodoro, John Donahoe, David Dorman, Belinda Johnson, Gail McGovern, Deborah Messimer, David Moffett, Anne Sarnoff, Dan Schulman and Frank Gehry. The second item of business is an advisory vote to approve the compensation of our named executive officers.
The 3rd item of business is the ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2019. The next item of business is the consideration of 2 stockholder proposals if properly presented at this meeting. The 2 stockholder proposals and the company's opposition statements are provided in our proxy statement. A representative from each proponent will have 5 minutes to present their stockholder proposal. The first stockholder proposal regarding political disclosure was submitted by Mr.
James McRitchie and Ms. Myra Young. Mr. McRitchie will be presenting the proposal. Operator, please open the line for Mr.
McRitchie.
Mr. McRitchie, your line is now open and you may proceed.
Thank you. Anyone who is concerned with our ability to ensure PayPal's political best interest of shareholders should vote for this proposal. If you aren't sure how to vote, keep in mind that PayPal is essentially switching many of the votes of its own shareholders. If you mark your ballot to abstain because you do not want your vote counted, PayPal will ignore your wish and instead count it as a vote against. If PayPal's Board is going to count abstain as against, why offer abstain as a voting option?
This vote counting tactic should serve as a warning, trust but verify only works with adequate information. Vote for proposal number 4, which asks PayPal to report its political contributions and expenditures both direct and indirect. Thank you.
Thank you, Mr. McRitchie. The Board of Directors recommends a vote against the stockholder proposal for the reasons set forth in our opposition statement included in our proxy statement. The second stockholder proposal regarding human and indigenous people's rights was submitted by John C. Harrington, Trustee for Harrington Investments, Inc.
401 ks Plan. Doctor. Dalit Baum will be presenting the proposal as Mr. Harrington's representative. Operator, please open the line for Doctor.
Baum.
Doctor. Baum, your line is now open and you may proceed.
Thank you very much. In 2011, the UN unanimously adopted the UN Guiding Principles on Business and Human Rights, providing a step by state due diligence process for companies to fulfill their responsibility to respect international human rights. Over the next few years, this international effort expanded to include a reporting framework and an industry by industry implementation guide. Our company states that it strives to democratize financial services in the spirit of collaboration, inclusion, innovation and wellness and to be a responsible, transparent and sustainable corporate citizen. This is a statement from the website.
Our proposal today urges PayPal to align its legally binding policies with this lofty statement and commit to respect for human rights and indigenous peoples' rights in its governance documents. At this time, PayPal does not have a binding human rights policy. None of the committee charges, company bylaws or articles of incorporation spell out this crucial fiduciary duty. Even in its voluntary non binding ESG policies, the company does not cover the full scope of human rights. And this is a material risk for us as investors with possible severe reputational and legal implications.
Our company provides services in about 200 countries all around the world. This must create complex situations where local laws and regulations conflict with international human rights law or with the rights of indigenous populations. Conflict zones create increased human rights risks and occupied territories are notorious as a literal minefield for human rights. Just last month, Airbnb faced a lawsuit and a media storm over its services in illegal Israeli settlements, and it announced it would donate all revenues from these to humanitarian causes. Our own company also faces growing concerns about discriminatory practices in that part of the world, which is the same part of the world I'm from.
I'm an Israeli. Israeli settlers live on land confiscated by force from its indigenous Palestinian owners. They use stolen natural resources and travel freely as their Palestinian neighbors are subjected to a brutal military regime with no civil rights, no equal access to water and roads and no equal access to PayPal services. This is unconscionable. It is also unsustainable.
All other financial institutions, which provide services to West Bank Israeli settlements, which are illegal by international law, have faced international condemnation and divestment by large American and European institutional investors. Over the last 3 years, the UN has collected a database of companies which enable and support these illegal Israeli settlements. Do we know if our company is on that list? Could we have avoided the situation entirely had we conducted a thorough human rights due diligence process before expanding our business into that conflict area. For 3 years now, members of the Palestinian business community have appealed to PayPal, asking it to make it right and extend its services equally to the Palestinian community.
Software developers and small entrepreneurs in Palestine use their smarts, their guts and audacious hope to build new businesses under immensely harsh conditions. Our company can help them. 59 members of the U. K. House of Commons put forward a motion calling on PayPal to expand its service to Palestinians and their banks.
More than 180,000 people signed a petition asking the company to rethink its discriminatory policies. And they were joined by institutional investors here in this room representing about $16,000,000,000 in assets under management. If our company is to navigate these potentially explosive situations successfully, it must rely on a clear and a binding universal and ethical human rights policy. I urge you to support Proposal 5. Thank you.
Thank you, Doctor. Bong. The Board of Directors recommends a vote against the stockholder proposal for the reasons set forth in our opposition statement provided in our proxy statement. That concludes the presentation of the items of business that you've been asked to vote on at today's meeting. The polls are now closed and no additional votes may be submitted.
I have received the preliminary voting results from the Inspector of Elections based on the proxies received as of the opening of the polls at today's meeting. The preliminary voting results are as follows: 1st, each of the 12 director nominees has been duly elected 2nd, the compensation of our named executive officers has been approved by advisory vote. 3rd, the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2019 has been ratified. 4th, the stockholder proposal regarding political disclosure has been rejected. And 5th, the stockholder proposal regarding human and indigenous people's rights has been rejected.
All votes are subject to final count certified by the Inspector of Elections. We will report the final vote results on a Form 8 ks to be filed with the SEC within 4 business days from today's meeting. There being no further business to come before the meeting, the 2019 Annual Meeting of Stockholders of PayPal Holdings, Inc. Is now adjourned. Our President and Chief Executive Officer, Dan Shulman, will now provide a brief presentation on our business followed by a question and answer session.
As a reminder, today's presentation may contain forward looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. Actual results may differ materially from these forward looking statements due to various risks and uncertainties about our business, which are described in our filings with the Securities and Exchange Commission, including our annual report on Form 10 ks and subsequent quarterly reports on Form 10 Q. We assume no obligation to update any forward looking statements. With that, let me turn the call over to Dan.
Thanks, Brian. This past year was a transformative one for PayPal. The world we live in is changing rapidly and the political and economic landscape remains dynamic. The continuing digitization of cash and the global proliferation of mobile technologies like 5 gs are redefining the face of commerce and creating new opportunities to connect, to share, to shop and to sell. I'm pleased to share with you the progress PayPal made this past year.
We continue to transform our business into an open digital payments platform to fulfill PayPal's potential as the de facto operating system for mobile and digital commerce around the world. I'm proud say that these efforts are reflected in our operational and financial performance. We had a strong start to 2019 with solid growth in revenue, net new actives and engagement. We added 40,000,000 net new actives in the past 12 months, an all time record and more than twice our run rate from just 2 years ago. We now have 277,000,000 active accounts on our platform, and we are on pace to exceed 300,000,000 active accounts by the end of this year.
Venmo with more than 40,000,000 active customers is driving significant increases in volume growth and monetizable transactions. And even as we add record net new actives, our customer engagement continues to grow. And importantly, our newest groups of users are exhibiting higher levels of engagement as we add more products and services, improve the customer experience, expand our partnerships with leading global companies and continue our global expansion. As retailers face increasing competition and consumers have more choice than ever. We have worked hard to significantly strengthen our overall value proposition.
New products and features like One Touch Conversion, PayPal Checkout with smart payment buttons, Funds Now and PayPal for partners have made PayPal a must have platform for merchants to maximize their opportunities, drive sales and get instant access to their funds. We also expanded the breadth of products and services we can offer our customers with last year's acquisitions of Hyperwallet, Izetto, JetLore and Simility. We strongly believe that partnering with the most important and fastest growing global companies is key to becoming the leading digital payments platform across the globe. In the past 3 years, we've announced more than 40 partnership agreements with world class retailers, financial institutions, traditional credit card networks and telecom and technology companies. The competitive landscape is broad, but we see these players as partners, not competitors, and we're adding more and more every quarter.
Recently, we announced that we are extending our global partnership with Uber exploring future commercial payment collaborations, including the development of Uber's digital wallet, and we've invested $500,000,000 in the company. We also recently announced an expanded relationship with Facebook through which PayPal will power the payments infrastructure of Facebook marketplaces and Instagram checkout. In March, we announced the strategic investment in MercadoLibre, a meaningful development in our drive to deepen our international scope and scale. Our goal is to expand our partner ecosystem so that we can deliver our capabilities to more customers around the world. This significantly increases the network effect for our business and has the benefit of opening up the digital economy to millions of new consumers and businesses.
Our mission to democratize financial services is more relevant and important than ever. To fulfill our mission, we work to maximize the positive impact of our business and to be a responsible corporate citizen on behalf of all of our stakeholders. In April, we released our 2nd annual Global Impact Report, highlighting the progress we've made in driving social impact, managing our environmental footprint and supporting our employees and their communities. What's more, we remain committed to creating an inclusive, diverse workforce. In addition to achieving gender pay equity for the 3rd straight year and driving our total diversity to 54% at the director plus level.
I'm pleased to say that as of early 2019, our Board of Directors is now 50% women and underrepresented ethnic minorities. We continue to transform our business into a global platform company with a clear and inspiring mission and a commitment to stay true to our values. I'm proud of what we've achieved for our stockholders, our customers, our colleagues and our partners. All of us at PayPal look forward to another strong year and we thank you for your support and confidence. We're now going to begin the Q and A portion of the meeting and I'll turn it over to Gabrielle to lead us in that.
Thanks, Dan. You may continue to submit questions for the Q and A session by typing them into the text box on the meeting website screen to the end of the Q and A session. We will attempt to answer as many questions as time allows. As noted in the rules of conduct for the meeting, only appropriate questions will be addressed. We received several questions in advance regarding how to access information in the proxy statement as well as a question regarding a stockholder proposal.
We have posted our responses to those I noticed that only one of the 5 executive team members is female. I noticed that only one of the 5 executive team members is female. Although she'd equally compensated with 3 of the men with respect to stock awarded, her salary is the lowest. What accounts for that?
Thanks, Gabrielle. Since April 2018, Louise Pentland, our Chief Business Affairs and Legal Officer has had the same annual base salary and bonus opportunity as our Chief Financial Officer and Chief Operating Officer. The annual base salaries of our named executive officers, including Ms. Penland, are disclosed on Page 57 of our proxy statement. The summary compensation table shows the actual dollar amount of salary paid for 2018, which resulted in the difference shown in the salary column this year.
On a related note, with the addition of Allison Johnson, our EVP and Chief Marketing Officer, 50% of our Senior Vice President and above executives are women or underrepresented ethnic minorities.
Thanks, Brian. The next question is why are there so many directors?
I could take that question. In accordance with our governance guidelines, the Board sets a number of directors at a level that they believe most effectively supports the company. We believe we have the appropriate number of directors for our size complexity. Our board members are highly engaged and contribute significant time and energy to the responsibilities. And each director brings expertise that allows the collective board to effectively oversee the company.
Thanks, Brian. The next question is, why is PayPal management allowed to discriminate against users based on their political beliefs?
I'll take that question, Gabriel. Our mission is deeply grounded in our commitment to democratizing financial services and providing the billions of people around the world with equal financial opportunities. We do not discriminate against users based on political beliefs. We also believe that we have a responsibility to be a role model corporate citizen. Our company must have a purpose beyond just profit and our stakeholders expect us to take meaningful action on issues that are inconsistent with our core values.
Thanks, Dan. The next question is, are we not federally required to change independent auditors regularly to prevent any possible conflict of interest? If we've been with PwC since 2000, why are we not changing to another auditor to verify ethical practice?
I'll take that question. PwC has only served as PayPal Holdings independent auditor since 2015 when the company became an independent public company. We believe this is the appropriate timeframe for measuring PwC's tenure as our independent auditor. Federal regulations require our independent auditor to rotate the lead partner in our audit engagement every 5 years.
Thanks, Brian. The next question is, while pleased to see the number of women on the Board, I noticed a lack of diversity ethnically. How were Board members sought and selected? Would you ever consider implementing a Rooney Rule to improve upon the lack of diversity?
I'll take that one. Consistent with our commitment to inclusion and diversity at all levels of our company, 50% of our board members are now women or from underrepresented ethnic groups. When searching for new directors, we actively seek out qualified women and individuals from underrepresented ethnic groups to include in the pool from which our board nominees are chosen. I think we've done a good job so far in building a world class board and we will continue to consider qualified nominees with relevant qualification, skills and experience who will be strong contributors to our Board.
Thanks, Dan. The next question is, PayPal claims to espouse human rights and equality as one of our values. So why do we have operations in countries notorious for violations of
that every person has the right
to be treated equally, that every person has the right to be treated equally and with dignity and respect. Principles of fairness, inclusion and equality are at the heart of everything we seek to achieve and stand for as a company. Through our government relations team and public policy research, we use our position as a business leader to influence legislation, regulation or other government decisions, actions or policies in support of our mission, our employees, our values and our customers.
Thanks, Dan. The next question is doing well and doing good are not mutually exclusive. Why did the Board recommend against human and indigenous rights or political disclosure? You're not a gun manufacturer or arms exporter. You're the friendly neighborhood payment facilitator.
You can do this. If corporate America doesn't take the lead in doing what's right, you know the current White House is certainly not. Where does that leave our grandchildren? Lead. Thank you.
Thanks for that question. Our mission is to democratize financial services and it's fueled by our core values of collaboration, inclusion, innovation and wellness. Our 2018 Global Impact Report outlines our strategy and our progress on our environmental, social and governance priorities. The report also provides insight into how we're making a difference in this world by acting on our mission and values today and into the future. For example, in 2018, we obtained a perfect score for the 3rd consecutive year from the Human Rights Campaign Corporate Equality Index 2018.
With respect to the stockholder proposals regarding political disclosure and human rights, As Brian stated earlier, the Board considered each proposal and concluded that their adoption is unnecessary and not in the best interest of our stockholders for the reasons outlined in the proxy statement.
Thanks, Dan. We've received a number of questions from our stockholders during this meeting and we will attempt to answer all appropriate questions in the time remaining. The first question we received was how many people are attending the meeting today?
Thanks, Deborah. I can take that. As of now, we have 36 people attending the meeting today.
Thanks, Brian. The second question we received is with the CEO pay ratio of 313:one, our CEO is extremely generously paid and incentivized to do his job to the best of his abilities. The CEO PSU award that raised the CEO pay ratio far above 313:one and specifically to 543:one makes a mockery of the compensation and incentives of other PayPal employees. Why are incentives such as the CEO PSU award so unaccountable and unfairly high? Dave Dorman, would you like to answer this question?
Linked directly to share price and was set at a very high bar. At the time, our stock was trading at a near all time high of $77 and we set 2 different achievement levels, 1 at a stock price of $110 a share, the next one at $150 with the idea that we would have to stretch to get there over a longer period of time. Our long term plans are 3 year plans. This is a 5 year plan. And to ensure that early achievement or whatever set of reasons did not necessarily yield the amount unless the stock price continued to increase and hold its level.
The award cannot be it can be earned, invested, but cannot be realized until the end of the 5 year period. And we felt there was great connectivity between a significant increase in the market value of the company, the most sensitive measure of shareholder performance from a return perspective. With respect to how that fits into the pay ratio, we as a company have a wide range of employees across many different job levels. These kinds of ratios can get very different results depending on the makeup of your company. We consider this to be a very strong performance based incentive to realize our 5 year growth plan and that's why we did it.
Thanks, Dave. The next question we received is what percentage of online purchases are conducted via the PayPal platform, I. E. What is the market share for PayPal?
I'll take that question. We don't break out our market share. It's a difficult actually calculation to do. What we do look at is what is our growth rate in terms of our processing volumes versus the industry. In the last quarter, our FX neutral TPV or total process volume was about 25%, which we think is greater than the industry average.
And therefore, we continue to believe that we are gaining market share. And that's the way that we look at that. What is our growth rate on TPV versus what is the growth rate of the market? And for the last at least several quarters and even quarters before that, we believe we're growing faster than the market.
Thanks, Dan. The next question we received is why would you make such a huge investment in Uber? PayPal shareholders expect to be invested in the payments industry, not the so called ride sharing industry.
Yes. Thanks for that question. Really appreciate it. We take a look at all of our investments. We have a very clear policy on what we do with our overall capital, how much we return to shareholders, how much we invest organically, how much we invest in acquisitions.
This overall investments in companies like Uber or MercadoLibre is a part of our capital that we are dedicating towards acquisitions and partnerships. With both MercadoLibre and Uber, this is not so much about investing in the company, but securing a very broad and extensive commercial partnership and overall partnership with both of those companies. We believe both companies will add significantly to the scale, scope and overall engagement, that we have with our consumers and potential consumers. This business is very much one of partnerships. It's one where we interconnect with other payment networks, with other large payment players of which Uber is 1 and MercadoLibre certainly is the one of the leading, if not the leading e commerce player in Latin America.
And so these two investments cemented these relationships that we have and we expect to reap quite significant benefits as a result of that.
Thanks, Dan. At this time, we have no further questions from our stockholders. So that concludes the question and answer portion of the meeting. I'll turn the meeting back to Dan to conclude.
Thanks, Gabriel. I wanted to close by, 1st of all, thanking everybody who participated in today's virtual meeting and those stockholders who have submitted questions. I hope that all of you have a great day and thanks again for calling in.
This concludes PayPal Holdings Inc. 2019 Annual Stockholders Meeting. A replay of the meeting will be available within 24 hours at the website you logged in to today. The company's response to the stockholders' questions will also be posted on the meeting website and the company Investor Relations website. You will be disconnected from the meeting.