Apple Inc. (APPL): Proxy Score 83

appleUpdate: ISS recommends its clients vote in support of proxy access, calling the proposed eligibility requirements of my proposal at Apple robust, while safeguarding against abuses in the nominating process. Glass Lewis opposes the proposal because “given the company’s… positive financial performance, we do not believe that adoption of this proposal is necessary at this time.”

So, the tool you’ll need when the company is in trouble, you’re supposed to wait until the company is already in trouble to put that in place, according to Glass Lewis… then you wait again until you can make nominations? That’s like waiting until a building is on fire to install a sprinkling system. Apache is the latest company to support proxy access. That company, which sued retail shareowner John Chevedden rather than allow shareholders to vote to eliminate supermajority requirements, seems to have a better grasp of when proxy access is needed than proxy advisor Glass Lewis.

The C$238.8 billion ($189.4 billion) Toronto-based CPPIB and the $182.2 billion FSBA both plan to vote in support of a shareholder proposal calling for proxy access, enabling shareholders to use corporate proxy materials to nominate up to 25% of the board. CalSTRS ($186 billion) voted for proxy access, using the Glass Lewis voting platform.

Apple Inc. $APPL, which designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players, is one of the stocks in my portfolio. Their annual meeting is coming up on 3/10/2014. had the votes of two funds when I checked and voted on 3/3/2015. (They now have more.) I voted with management 83% of the time and assigned them a proxy score of 83.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Apple Inc. 2015 proxy in order to enhance corporate governance and long-term value.

Apple ISS Rating

From Yahoo! Finance: Apple Inc.’s ISS Governance QuickScore as of Feb 1, 2015 is 1. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 1; Compensation: 6. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus… compensation.

Apple Compensation

The Apple Summary Compensation Table shows the highest paid named executive officer (NEO) was Angela Ahrendts, the Senior Vice President of Retail and Online Stores. She pulled in $73.4M.  I’m using Yahoo! Finance to determine market cap ($754B) and Wikipedia’s rule of thumb regarding classification.

Apple is definitely a mega-cap company.  According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Apple’s pay is substantially above that, even figuring mega-cap, inflation and spectacular job. To its credit, Apple shares outperformed the NASDAQ over the most recent one, two, five and ten periods.


The GMIAnalyst report I reviewed gave Apple an overall ESG grade of ‘F.’ According to the report:

  • Key governance issues at US computer company Apple Inc. include a board populated by a majority of directors who are active or former CEOs at large cap companies and who lack technology sector experience.
  • 60% of NEOs’ equity consists of time-based RSUs that vest without performance-contingent criteria while performance-based RSUs pay out even if the company’s TSR underperforms 75% of its peers.
  • Newly appointed Senior Vice President Angela Ahrendts received a golden hello in May 2014 valued at over $70 million, consisting of nearly $57 million in time-vesting RSUs (ie no performance conditions apply before vesting is achieved), over $13 million in performance-based RSUs, $500,000 in cash, and relocation benefits.
  • For the past two years management has not supported proxy access proposals which would allow shareholders the right to place director nominees to the annual meeting agenda, although the company “intends to carefully consider proxy access and engage in discussions with its shareholders.”

I am willing to give Apple the benefit of the doubt but these points just scratch the surface of what is wrong with their pay package.  I voted against it.

Apple Board of Directors and Board Proposals

I considered voting against the head of the Compensation Committee, Andrea Jung, as a protest to pay that is not adequately aligned with performance and Dr. Ronald D. Sugar for sitting on too many corporate boards. However, I held off in light of some progress made, such as declassifying their board. I voted in favor of all directors. I also voted in favor of the employee stock purchase plan. On a side note, it is good to see Apple will hire its contract security guards as full-time employees, making them eligible for benefits. Good labor practices are a plus. See also, Statement by David Huerta, President of SEIU.

Apple Accounting

I voted to ratify Apple’s auditor, Ernst & Young LLP, since less than 25 percent of total audit fees paid are attributable to non-audit work.

Shareholder Proposals at Apple

I voted against the proposal to report on risks associated with government climate change regulations and policies proposed by the National Center for Public Policy Research. The costs of climate change related to any required government policies are so far extremely minimal, compared to the cost to lives and property from climate change. Please vote against this climate change denier.

Of course, I voted in favor of the proxy access proposal that John Harrington and I submitted. We are delighted to see substantial progress being made by Apple in the area of corporate governance. Declassifying the board and requiring a majority vote for directors in uncontested elections does make Apple a leader.

Our proposal asks the Board to take the next logical step and provide shareholders with very limited access to the proxy for up to 25% of Board candidates. Being in the proxy isn’t the same as winning seats. Any nominees will still need to get a majority of votes cast – your votes.

In their rebuttal, Apple makes several minor points as to how the proposal could be improved. By law, we have only 500 words to describe our proposal, which is strictly advisory. Apple’s opposition statement took more than 1200 words.

If you pass the proposal, the Board can make any changes it likes. They say they are in continuing dialogue with shareholders. We would welcome any such opportunity. While our proposal does specify language, we have no problem with Apple adopting amendments that remain within the spirit of our proposal.

The major idea is to create a real competition of skills and ideas. Allow groups of shareholders owning 3% of our company (about $22.5B worth of stock)… let them –  if they have also held that stock for 3 years – to place up to 2 nominees on the proxy. Proxy access would drive competition among board candidates and would create direct accountability to shareholders.

CFA Institute, the group that certifies chartered financial analysts, recently issued a thorough report concluding that proxy access has the potential to enhance board performance and raise overall US market capitalization by up to $140.3 billion. Apple can lead the way in creating that momentum. Please vote in favor of proposal #6, proxy access.

CorpGov Recommendations for Apple – Votes Against Board Positions in Bold Under CorpGov

1.1Elect Director Tim CookForForFor
1.2Elect Director Al GoreForForFor
1.3Elect Director Bob IgerForForFor
1.4Elect Director Andrea JungForForFor
1.5Elect Director Art LevinsonForForFor
1.6Elect Director Ron SugarForForFor
1.7Elect Director Sue WagnerForForFor
2Ratify Auditors Ernst & Young ForAgainstFor
3Ratify NEO CompensationAgainstAgainstAgainst
4Approve Employee Stock PlanForForFor
5Report Risks of Climate Change RegsAgainstAgainstAgainst
6Adopt Proxy Access RightForForFor

SharkRepellentGovernance Issues at Apple

Looking at for provisions unfriendly to shareowners:

  • None! – at least none that are major concerns to me.

Mark your Calendar to Submit Future Proposals at Apple

Proposals that a shareholder intends to present at the 2016 annual meeting of shareholders and wishes to be considered for inclusion in the Company’s proxy statement and form of proxy relating to the 2016 annual meeting of shareholders must be received no later than September 24, 2015. All proposals must comply with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which lists the requirements for the inclusion of shareholder proposals in company-sponsored proxy materials. Shareholder proposals must be delivered to the Company’s Secretary by mail at 1 Infinite Loop, MS: 301-4GC, Cupertino, California 95014, or by email at


Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at 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, with their collective pay spiraling out of control. We need to slow the pace of money going to the % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

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