Intel

Intel: Proxy Voting Score 56

IntelIntel Corporation (NASD:INTC), one of the stocks in my portfolio, designs and manufactures integrated digital technology platforms. Their annual meeting is coming up on 5/21/2015. ProxyDemocracy.org had the votes of three funds when I checked and voted on 5/14/2015. I voted with management 56% of the time and assigned Intel a proxy score of 56. 

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

Intel: ISS Rating 

From Yahoo! Finance:Intel Corporation’s ISS Governance QuickScore as of May 1, 2015 is 2. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 3; Compensation: 3.  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…. Board.

Intel: Compensation

Intel’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Brian M. Krzanich, at about $11.2M in 2014. I’m using Yahoo! Finance to determine market cap ($155B) and Wikipedia’s rule of thumb regarding classification.

Intel is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Intel’s pay last year was above median. Intel’s shares underperformed the NASDAQ over the most recent two, five and ten year periods. However, it outperformed the NASDAQ over the most recent one year period.

MSCI GMIAnalystThe MSCI GMIAnalyst report I reviewed gave Intel an overall grade of ‘D.’ According to the report:

  • Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
  • The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.

I voted against the pay plan and omnibus stock plan.

Intel: Board of Directors and Board Proposals 

I voted against the directors on the compensation committee, since they recommended the pay package to the full board: David S. Pottruck, Chairman, John J. Donahoe and David B. Yoffie. Donahoe failed to attend 75% of the meetings. I also voted against Charlene Barshefsky who, along with David B. Yoffie, sits on four boards. I think that is too many to be able to donate adequate time to each.

I voted in favor of the employee stock purchase plan to reward and incentivize employees.

Intel: Auditor

I voted for the auditor, seeing no potential conflicts of interest.

Shareholder Proposals at Intel

I voted in favor of Intel adopting the Holy Land Principles, proposed by John Harrington. This proposal was a new one to me this year and I was at first a bit skeptical. However, after looking into them, I am in total agreement. These are like the Sullivan Principles we applied in South Africa to help end apartheid. Check out founder Fr.Sean  Mc Manus. Corporations have a role in bringing peace to this troubled area through nondiscrimination. I’m surprised by the abstentions. Do they realize Intel will count their abstentions as against?

As at every company where available, I voted in favor of John Chevedden’s proposal to move to an independent chair… gradually, without violating existing contracts. Management and governance are separate jobs.

I also voted in favor of simple majority voting, as proposed by Eric Rehm and Mary Geary who appointed Investor Voice to represent them. Investor Voice. See their informative fact sheet. Abstentions should never count as votes against. Votes should be counted as cast, not switched without permission. Boards shouldn’t stuff ballot boxes.

CorpGov Recommendations for Intel – Votes Against Board Position in Bold

# PROPOSAL TEXT MGMT CALVERT  TRILLIUM DOMINI
1a Elect Director Charlene Barshefsky Against For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1b Elect Director Aneel Bhusri For For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1c Elect Director Andy D. Bryant For For Against Against
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1d Elect Director Susan L. Decker For For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1e Elect Director John J. Donahoe Against Against Against Against
Calvert Social Index Fund: The nominee attended less than 75 percent of the board and committee meetings.There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.The nominee is a CEO and sits on more than 2 public company boards.The nominee attended less than 75 percent of the board and committee meetings.
1f Elect Director Reed E. Hundt For For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1g Elect Director Brian M. Krzanich For For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1h Elect Director James D. Plummer For For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1i Elect Director David S. Pottruck For For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1j Elect Director Frank D. Yeary For For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
1k Elect Director David B. Yoffie Against For Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
Trillium Asset Management: Research There is both gender and racial diversity on the board.Less than 30 percent of the board is diverse.
2 Ratify Ernst & Young LLP as Auditors For For For For
Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
Trillium Asset Management: Research Less than 25 percent of total audit fees paid are attributable to non-audit work.
3 Ratify Named Executive Officers’ Compensation Against For Against Against
Calvert Social Index Fund: As pay and performance are reasonably aligned, a vote FOR this proposal is warranted.
Trillium Asset Management: Research Total CEO compensation exceeds 7 million dollars. Total compensation to outside directors exceeds 100,000 dollars.
4 Amend Omnibus Stock Plan Against For Against Against
Calvert Social Index Fund: The plan warrants shareholder approval.
Trillium Asset Management: Research Total CEO compensation exceeds 7 million dollars. Total compensation to outside directors exceeds 100,000 dollars.
5 Amend Qualified Employee Stock Purchase Plan For For For For
Calvert Social Index Fund: A vote FOR this proposal is warranted given that:* The purchase price is reasonable;* The shares reserved is relatively conservative; and* The offer period is within the limits prescribed by Section 423 of the Internal Revenue Code.
Trillium Asset Management: Research A vote FOR this proposal is warranted given that: The purchase price is reasonable; The shares reserved is relatively conservative; and The offer period is within the limits prescribed by Section 423 of the Internal Revenue Code.
6 Adopt Holy Land Principles For Abstain Abstain Abstain
Trillium Asset Management: Research Trillium ABSTAINS from this proposal.
7 Require Independent Board Chairman For For For For
Calvert Social Index Fund: Calvert supports shareholder resolutions requiring the company establish an independent board chairperson.
Trillium Asset Management: Research A vote FOR this proposal is warranted given the importance of having an independent chairman of the board.
8 Adopt Simple Majority Vote For Against For Against
Calvert Social Index Fund: A vote AGAINST the proposal is warranted; the company has adopted a consistent vote threshold for management and shareholder proposals, both of which count abstentions.
Trillium Asset Management: Research Trillium will vote CASE-BY-CASE on this proposal.

Corporate Governance Issues at Intel

Looking at SharkRepellent.net for provisions unfriendly to shareowners:SharkRepellent

  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.

Intel Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, some stockholder proposals may be eligible for inclusion in our 2016 proxy statement. These stockholder proposals must be submitted, along with proof of ownership of our stock in accordance with Rule 14a-8, to our principal executive offices in care of our Corporate Secretary by one of the means discussed below in the “Communicating with Us” section of this proxy statement. Failure to deliver a proposal in accordance with this procedure may result in the proposal not being deemed timely received. We must receive all submissions no later than the close of business (5:00 p.m. Pacific Time) on December 4, 2015.

We strongly encourage any stockholder interested in submitting a proposal to contact our Corporate Secretary in advance of this deadline to discuss the proposal, and stockholders may find it helpful to consult knowledgeable counsel with regard to the detailed requirements of applicable securities laws. Submitting a stockholder proposal does not guarantee that we will include it in our proxy statement. Our Corporate Governance and Nominating Committee reviews all stockholder proposals and makes recommendations to the Board for action on such proposals. For information on recommending individuals for consideration as director nominees, see the “Corporate Governance” section of this proxy statement.

Intel engages in a continuous quality improvement approach to corporate governance practices. We monitor and evaluate trends and events in corporate governance and compare and evaluate new developments against our current practices; we understand that corporate governance is not in a static state with regard to numerous topic areas. We seek and receive input from stockholders and other commentators on our practices and policies, and our Board and the Board’s Corporate Governance and Nominating Committee consider this input when reviewing proposals to change practices or policies.

Warnings

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 5 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 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven. Additional findings by Mark Van Clieaf of Organizational Capital Partners, as reported in The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design:

  • Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.
  • Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.
  • Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.
  • More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.
  • Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.

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