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Apple (AAPL) Proxy Access: Proxy Score 44

AAPL logoApple Inc. (NASD:AAPL) designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide.

AAPL is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of two funds when I checked and voted. Their annual meeting is coming up on February 28th, 2017.  

I voted FOR Proxy Access Amendments. See how and why I voted other items below. I voted with the Board’s recommendations 44% of the time. View Proxy Statement via iiWisdom.

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

AAPL: ISS Rating

From the Yahoo Finance profile: Apple Inc.’s ISS Governance QualityScore as of ‎February‎ ‎2‎, ‎2017 is 1. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 1; Compensation: 6. 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: Compensation.

AAPL: Compensation

AAPL’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Sr. VP Retail, Angela Ahrendts at $22.9M in 2016. I’m using Yahoo! Finance to determine market cap ($712.06B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Apple is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2015, so pay was well above that amount. Apple shares outperformed the NASDAQ over the most recent one and ten year time periods, but underperformed in the most recent two and five year time periods.

The MSCI GMIAnalyst report I reviewed gave APPL an overall grade of ‘B.’

  • The company has not disclosed specific, quantifiable performance target objectives for the CEO. While a majority 92% of companies in the home market have not disclosed these targets, disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
  • The CEO’s annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.

Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.

We believe that shareholders should support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value. Therefore, we recommend a vote “FOR” this Proposal.

I voted “AGAINST” the say-on-pay item and voted in favor of a one-year frequency. The “Lake Woebegone effect” has to be ended. We can’t just keep voting in favor of higher and higher pay packages. I could understand paying more than median, since AAPL is so big but not double. I also voted against all the compensation committee members Andrea Jung (Chair), Al Gore and Bob Iger.

AAPL: 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 “FOR.”

AAPL: Board Proposals

As mentioned above, I voted “Against” the pay package and in favor of one-year say-on-pay frequency. As is my habit, when I vote against the pay package, I also vote against the compensation committee.

AAPL: Shareholder Proposals

#5 Disclose Charitable Contributions

This is a proposal from the National Center for Public Policy Research, a conservative think tank. The proposal seeks a report on charitable giving. Apple appears to disclose sufficient information for shareholders to assess the company’s charitable contribution priorities, policies, and management oversight mechanisms. I voted AGAINST.

#6 Adopt Policy to Increase Diversity of Senior Management and Board of Directors

This is a proposal from Antonio Avian Maldonado and Zevin Asset Management. I agree with Calvert. “A vote FOR this proposal is warranted due to: A policy to increase diversity at the senior management and board levels is consistent with the company’s stated policies and current initiatives for promoting diversity at the workplace; and – The resolution does not appear to fetter the company’s ability to promote or recruit experienced competent and executives with suitable skill sets specific to the company’s needs.”

#7 Shareholder Proxy Access Amendments

James McRitchie

James McRitchie

James McRitchie (that’s me) is the proponent. I voted ‘FOR.’ While AAPL amended their proxy access bylaws after last year’s vote on my previous proposal, two significant changes are still needed.

Current bylaws allow shareholders to nominate only one, easily isolated, director. Most S&P 500 companies have adopted proxy access. 80% allow shareholders to nominate two or more director. The proposal calls for 25% or two, whichever is greater, well in line with current corporate practices.

Current bylaws limit nominating groups to 20 members. The Council of Institutional Investors studied such provisions and found their members, who hold in excess of $3 trillion in assets, would not be able to meet the requirement of 3% held for 3 years with a 20-member limit. The proposal seeks removal of the cap on the number of members that can form a group.

One thing few take into account is that shares are not consistently held. Funds frequently buy or sell shares. For example, during the last reporting period (quarter), the top 10 institutional shareholders at Apple bought or sold an average of 9% of their shares. That drastically reduces the likelihood that 20 shareholders can get to 3% since many will have held only a small fraction, if any, of the shares they hold today for the entire three year period. According to PoliticFact, the average holding time for all stocks has fallen to four months. Apple and other companies have provided no evidence their restrictive proxy access bylaws are anything but an illusion.

Like all the shareholder proposals on Apple’s proxy, proposal #7 is advisory. The Board has flexibility in implementing (or not implementing) any proposal. For example, the Board could allow shareholders to nominate up to 20% of the Board, or 2, whichever is greater and could lift the cap on nominating groups from 20 members to 40 members. That would give shareholders genuine proxy access. Vote FOR #7.

#8 Engage Outside Independent Experts for Compensation Reforms

This proposal from Jing Zhao, asks AAPL to engage multiple outside independent experts or resources to reform its executive compensation principles and practices. I agree with Mr. Zhao, current pay practices do not appear to reward NEOs based on their own individual contribution to performance. I voted FOR. 

#9 Adopt Share Retention Policy For Senior Executives

This proposal from Kenneth Steiner requests AAPL adopt a policy requiring senior executives to retain a significant percentage of stock acquired through equity pay programs until reaching normal retirement age and to report on implementation. Stock retention would better align the interests of senior executive and long-term shareholders. I voted FOR.

Votes Against Board Position in Bold Proxy Insight

As mentioned above, ProxyDemocracy.org had collected the votes of funds when I voted.  Proxy Insight reported additional votes from Canada Pension (CPPIB), Teacher Retirement System of Texas (TRS), and Unitarians. All voted FOR #7 amendments to Apple’s proxy access bylaws.

1.1Elect Director James BellForForFor
1.2Elect Director Tim CookForForFor
1.3Elect Director Al GoreAgainstForFor
1.4Elect Director Bob IgerAgainstForFor
1.5Elect Director Andrea JungAgainstForFor
1.6Elect Director Art LevinsonForForFor
1.7Elect Director Ron SugarForForFor
1.8Elect Director Sue WagnerForForFor
2Ratify Ernst & Young LLP as AuditorsForForFor
3Ratify Named Executive Officers’ CompensationAgainstForFor
4Advisory Vote on Say on Pay FrequencyOne YearOne YearOne Year
5Disclose Charitable ContributionsAgainstAgainstAgainst
6Adopt Policy to Increase Diversity of Senior Management and Board of DirectorsForForFor
7Proxy Access Amendments

8Engage Outside Independent Experts for Compensation ReformsForAgainstAgainst
9Adopt Share Retention Policy For Senior ExecutivesForForFor

AAPL Proxy Access: Issue for Future Proposals

SharkRepellentLooking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:

  •  Proxy access provision whereby a group of up to twenty shareholders 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.

AAPL: Mark Your Calendar

What is the deadline to propose matters for inclusion in the proxy materials for the 2018 annual meeting of shareholders?

The proposal must be received on or prior to September 8, 2017. All proposals must comply with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Where do I send proposals and director nominations for the 2018 annual meeting of shareholders?

Proposals and director nominations must be sent either by mail to Apple’s Secretary at 1 Infinite Loop, MS: 301-4GC, Cupertino, California 95014, or by email to shareholderproposal@apple.com.


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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