Qualcomm, Inc. (QCOM, $QCOM) is engaged in providing third-generation (3G), fourth-generation (4G) and next-generation wireless technologies. Qualcomm, Inc is one of the stocks in my portfolio. Their annual meeting is on March 8, 2016. ProxyDemocracy.org had collected the votes of three funds when I checked. I voted AGAINST the Omnibus Stock Plan and Harish Manwani and FOR proxy access. I voted with the Board’s recommendations 81% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Qualcomm, Inc: ISS Rating
From Yahoo! Finance: Qualcomm Incorporated’s ISS Governance QuickScore as of Feb 1, 2016 is 10. The pillar scores are Audit: 10; Board: 3; Shareholder Rights: 6; Compensation: 10. Brought to us 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: all but Board.
Qualcomm, Inc: Compensation
Qualcomm, Inc.’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Steve Mollenkopf at $10.4M. I’m using Yahoo! Finance to determine market cap ($74B) and Wikipedia’s rule of thumb regarding classification. Qualcomm Inc. is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.1 million in 2014, so pay is about at median. Qualcomm Inc. shares underperformed the NASDAQ over the most recent one, two, five, and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave $DIS 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.
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group.
- The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers.
Due to the above issues and underperformance, I almost voted against the pay plan. I consider Qualcomm, Inc on the borderline.
Qualcomm, Inc: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.
Qualcomm, Inc: Board Proposals
I voted against the omnibus stock plan as too dilutive of existing shares (more than 10%). I also voted against Harish Manwani because he sits on five boards. That’s too many, especially for a company that isn’t keeping up with the NASDAQ. I like Mr. Manwani’s Ted Talk but Qualcomm, Inc must do better financially to good.
Qualcomm, Inc: Shareholder Proposals
#5 is my proposal. Yes, in response to my proposal, Qualcomm, Inc did adopt proxy access… but it is proxy access ‘lite’ (see Section 5A of amended bylaws). What we are seeking is real proxy access of the type worked out over a decade of negotiations with various parties at the SEC. The provisions adopted by the board limit shareholder groups seeking access to no more than 20 stockholders, whereas the SEC’s vacated Rule 14a-11, as well as policies of the Council of Institutional Investors place no such limit. Likewise the prohibition in Qualcomm, Inc.’s bylaws prohibiting renomination of a proxy access candidate for 2 years if they only get 25% of the votes discourages low cost proxy access campaign’s that may take more than a year to take hold, as do most new types of shareholder proposals. These and additional ‘lite’ features are compared below with CII’s policy paper Proxy Access: Best Practices.
1. Caps on Nominating Groups
CII policies and related public positions do not endorse limits or caps on the number of shareowners in the nominating group.
CII believes that shareowners should be allowed to aggregate their holdings in order to meet the ownership eligibility requirement to nominate directors. The ability to aggregate holdings is crucial to the effectiveness of proxy access—without it, a proxy access provision would not be viable.
We note that without the ability to aggregate holdings even CII’s largest members would be unlikely to meet a 3% ownership requirement to nominate directors. Our review of current research found that even if the 20 largest public pension funds were able to aggregate their shares they would not meet the 3% criteria at most of the companies examined.
CII’s position is generally consistent with the view of the SEC. In 2010, the SEC considered, but rejected imposing a cap on the permitted number of members in a nominating group. The SEC found that individual shareowners at most companies would not be able to meet the minimum threshold of 3% ownership for proxy access unless they could aggregate their shares with other shareowners.
2. Renomination Limitations
CII has publicly opposed restrictions on re-nominations when a nominee fails to receive a specific percentage of votes.
CII believes that since resubmission requirements aren’t applicable to management’s candidates, they shouldn’t apply to candidates suggested by shareowners.
CII’s position is generally consistent with the view of the SEC, which in 2010 considered, but rejected, imposing such restrictions. The SEC did not believe it was necessary or appropriate to include a limitation on the use of proxy access by nominating shareowners or groups that have previously used proxy access. The SEC also found that such a limitation would not facilitate shareowners’ traditional state law rights and would add unnecessary complexity.
3. Loaned Securities (prohibited under Qualcomm, Inc’s current proxy access lite)
CII believes that there are reasons why, consistent with its fiduciary obligations, a shareowner may lend securities to third parties, while retaining the right to recall and vote those securities. We believe that loaned securities should be counted as belonging to a nominating shareowner if certain conditions are met.
More specifically, CII has supported a requirement that nominating shareowners or each member of nominating group may include securities that have been loaned to a third party, provided that the participant represents that it has the legal right to recall those securities for voting purposes and will vote the securities at the shareowner meeting, accompanied by a representation that the participant will hold those securities through the date of the annual meeting. The SEC found that share lending is a common practice, and that loaning securities to a third party is not inconsistent with a long-term investment in a company.
4. Continue to Hold (Qualcomm, Inc’s current proxy access lite requires nominators to hold for a year after elections)
CII believes that as a practical matter, nominating shareowners may not know their intent to hold, sell or buy shares until after the election. We believe that depending on the outcome of a particular election, the nominator may purchase more stock or sell stock. CII has publicly stated that a pre-filing holding period, coupled with a requirement to hold shares until the date of the meeting, should suffice to achieve the goal of limiting proxy access to longer-term shareowners.
CII’s position is generally consistent with the view of the SEC, which in 2010 decided not to require nominating shareowners to hold the required percentage of shares after the annual meeting. The SEC did require a statement with regard to a nominating shareowner’s, or group member’s, intended ownership of the securities after the election of directors (which could be contingent on the results of the election of directors).
5. Limitation of Nominees to 20%, Instead of 25%, of the Board
This provision of Qualcomm, Inc’s current proxy access lite is potentially problematic if the Board shrinks or expands. While 20% of 15 board members yields 3 possible nominees, the same as 25% rounded down, if the Board were to reduce its numbers to 9 shareholder would only be able to nominate a single candidate, whereas 25% would still yield 2.
CII believes that it is important that shareowner nominees have meaningful representation on the board and that one director is insufficient to achieve that goal. Having at least two nominees helps ensure that the nominees, if elected, can serve on multiple committees and have greater opportunities to bring an independent perspective into board decisions.
Qualcomm, Inc: CorpGov Recommendations Below – Votes Against Board Position in Bold
I also checked Proxy Insight. They report Australia’s Local Government Super voted “For’ all items on the proxy, including #5 proxy access, as did TRS (Teachers Retirement System of Texas).
the Teacher Retirement System of Texas voted for all items, including the shareholder proposals.
| # | PROPOSAL TEXT | CorpGov | CALVERT | TRS | TRILLIUM |
|---|---|---|---|---|---|
| 1a | Elect Barbara T. Alexander | For | For | For | Against |
| 1b | Elect Raymond V. Dittamore | For | For | For | Against |
| 1c | Elect Jeffrey W. Henderson | For | For | For | Against |
| 1d | Elect Thomas W. Horton | For | For | For | Against |
| 1e | Elect Paul E. Jacobs | For | For | For | Against |
| 1f | Elect Harish Manwani | Against | Against | For | Against |
| 1g | Elect Mark D. McLaughlin | For | For | For | Against |
| 1h | Elect Steve Mollenkopf | For | For | For | Against |
| 1i | Elect Clark T. ‘Sandy’ Randt, Jr. | For | For | For | Against |
| 1j | Elect Francisco Ros | For | For | For | Against |
| 1k | Elect Jonathan J. Rubinstein | For | For | For | Against |
| 1l | Elect Anthony J. Vinciquerra | For | For | For | Against |
| 2 | Ratify Auditors | For | For | For | For |
| 3 | Approve Omnibus Stock Plan | Against | Against | For | Against |
| 4 | Ratify NEO Compensation | For | For | For | Against |
| 5 | Proxy Access | For | For | For | For |
Qualcomm, Inc: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to amend certain charter and all bylaw provisions.
- Proxy access provision whereby a shareholder or group of no more than 20 stockholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed 20% of the board. In proxy access, for nominations to be timely, the Notice of Proxy Access Nomination must be addressed to the Secretary of the corporation and delivered to, or mailed to and received by, the Secretary of the corporation no earlier than one hundred fifty days and no later than one hundred twenty days before the anniversary of the date that the corporation issued its proxy statement for the previous year’s annual meeting. Stockholder nominees who receive less than 25% of the vote will be ineligible to be a Stockholder Nominee for the next two annual meetings.
Qualcomm, Inc: Mark Your Calendar
The deadline for submitting a stockholder proposal for inclusion in our proxy materials for our 2017 Annual Meeting of Stockholders is September 23, 2016. Any such stockholder proposals or nominations for director must be submitted to our Corporate Secretary in writing at 5775 Morehouse Drive, N-520I, San Diego, California 92121-1714. Stockholders are advised to review our Amended and Restated Bylaws, which contain additional requirements for submitting stockholder proposals and director nominations..
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.
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