Gilead Sciences (GILD): How I Voted – Proxy Score 44

Gilead Sciences (GILD) is one of the stocks in my portfolio. Their annual meeting is coming up on 5/10/2012. Voting ends 5/9 on Moxy Vote’s proxy voting platform, which listed 8 “good causes,” but three were consolidations, when I checked and voted on 5/8. ProxyDemocracy.org had 4 funds voting.Gilead scores 44 out of 100, since I voted with management on only 44% of the proxy.

I make it a practice to vote against pay packages where NEOs were paid above median in the previous year. Yes, I know, this is pretty crude analysis. I’ll make exceptions where something obviously warrants different treatment. However, I’m concerned that NEOs are taking a greater and greater portion of wealth generated by companies.

According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay, Oxford Review of Economic Policy, Vol. 21, Issue 2, pp. 283-303, 2005), the aggregate compensation paid by public companies to their top-five executives during the period 1993-2003 totaled about $350 billion, and the ratio of this aggregate top-five compensation to the aggregate earnings of these firms increased from 5 percent in 1993-1995 to about 10 percent in 2001-2003.

At the same time, few firms want to admit to having average executives, so they seek to compensate their executives at above-average levels. They survey executive compensation at corporations and then set compensation packages that are above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average and their collective pay spiraling out of control.

GILD’s SummaryCompensation Table shows that John C. Martin, CEO & Chair was the highest paid named executive officer (NEO) at over $15.6M in 2011. I’m using Yahoo! Finance to determine market cap and  Wikipedia’s rule of thumb regarding classification. According to those sources, UNP is a large-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9&10), using data from Equilar, the median CEO compensation for large-cap corporations was $10.8 million in 2010, so GILD’s pay is above that median.  I voted against the pay package and against the members of the compensation committee (John W. Madigan, Kevin E. Lofton, Gordon E. Moore, and Nicholas G. Moore).

Three quarters of the equity plan is not performance-based.  The company bases pay on one peer group and performance to another peer group.  The result is that the CEO was one of America’s top ten highest paid CEO’s in 2010 and in 2011 according to Forbes.  Non-employee directors are receiving stock options as part of a management equity plan.  Having directors and management on the same plan seems like a conflict of interests.

Taking a hard line, I also voted against John C. Martin, since he’s the one getting too much pay, and against John F. Cogan on the basis that I’m not sure he should be counted as independent, given his status with Stanford University and GILD’s dealings with that institution, and on the basis of his Monaco Coach directorship leading up to its bankruptcy. See Forbes page on Martinas one of top ten paid execs in country. He earned $42.7M in one year, $204M over five years. I think there is such a thing as over the top.

I also voted against the auditor, Earnst & Young, since they have been GILD’s auditor since 1987.  I don’t have a set policy on auditor rotation but 25 years seems too long. That kind of tenure increases the risk of compromising their independence.

With regard to shareowner proposals. I voted in favor of John Chevedden’s proposal #4 to allow shareowners to act by written consent. This is an important governance feature allowing shareonwers to take action in times of emergency between annual meetings.

Of course, I also voted in favor of my own (James McRitchie) proposal #5 to redeem any current or future Poison Pill (called a “rights plan” by some but they take away shareowner rights) unless such plans are submitted to a shareowner vote, as a separate ballot item, within 12 months. Poison pills are plain and simple entrenchment devices and ours is set at a low 15% threshold.  Here’s former SEC Chairman Arthur Levitt’s take:

Poison pills … prevent shareholders, and the overall market, from exercising their right to discipline management by turning it out. They entrench the current management, even when it’s doing a poor job. They water down shareholders’ votes and deprive them of a meaningful voice in corporate affairs.

On other matters, I voted with management (on some of the directors).

Mark your calendars; here’s the deadline for proposals by shareowners for next year:

You may submit proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in our proxy statement for the annual meeting next year, the Corporate Secretary must receive the written proposal at our principal executive offices no later than November 23, 2012. Such proposals also must comply with SEC regulations under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, regarding the inclusion of stockholder proposals in company proxy materials. Proposals should be addressed to:

Corporate Secretary
Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, California 94404
Fax: (650) 578-9264

And here’s how I actually voted, using Moxy Vote’s proxy voting platform.

	JOHN F. COGAN	Withhold
	ETIENNE F. DAVIGNON	Yes
	JAMES M. DENNY	Yes
	CARLA A. HILLS	Yes
	KEVIN E. LOFTON	Withhold
	JOHN W. MADIGAN	Yes
	JOHN C. MARTIN	Withhold
	GORDON E. MOORE	Withhold
	NICHOLAS G. MOORE	Withhold
	RICHARD J. WHITLEY	Yes
	GAYLE E. WILSON	Yes
	PER WOLD-OLSEN	Yes

	TO RATIFY THE SELECTION OF ERNST & YOUNG LLP BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF GILEAD FOR THE FISCAL YEAR ENDING DECEMBER 31, 2012.	No
	TO APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF GILEAD S NAMED EXECUTIVE OFFICERS AS PRESENTED IN THE PROXY STATEMENT.	No
	IF PROPERLY PRESENTED AT THE MEETING, TO VOTE ON A STOCKHOLDER PROPOSAL REQUESTING THAT THE BOARD TAKE STEPS TO PERMIT STOCKHOLDER ACTION BY WRITTEN CONSENT.	Yes
	IF PROPERLY PRESENTED AT THE MEETING, TO VOTE ON A STOCKHOLDER PROPOSAL REQUESTING THAT THE BOARD TAKE STEPS TO REDEEM GILEAD S POISON PILL UNLESS THE PLAN IS SUBJECT TO A STOCKHOLDER VOTE.	Yes