QUALCOMM Incorporated (NASD:QCOM) develops, designs, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, the United States, and internationally.
QCOM 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 March 7th, 2017.
I voted AGAINST pay, comp committee members, auditor. FOR Proxy Access Amendments. See why below. I voted with the Board’s recommendations 57% 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.
QCOM: ISS Rating
From the Yahoo Finance profile: QUALCOMM Incorporated’s ISS Governance QualityScore as of February 25, 2017 is 5. The pillar scores are Audit: 1; Board: 3; Shareholder Rights: 6; Compensation: 5. 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: Shareholder Rights and Compensation.
QCOM: Compensation
QCOM’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Steve Mollenkopf at $11.1M in 2016. I’m using Yahoo! Finance to determine market cap ($84.52B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. QCOM 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 above that amount. QCOM shares underperformed the NASDAQ over the most recent one, two, five, and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave QCOM an overall grade of ‘D.’
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 85% of companies in the home market. 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. 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 company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- 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 #3. Consider all the issues identified by GMIAnalyst and the fact that investing in the NASDAQ would have been a smarter move. The “Lake Woebegone effect” has to be ended. We can’t just keep voting in favor of higher and higher pay packages. I also voted against all the compensation committee members Barbara T. Alexander (Chair), Harish Manwani and Mark D. McLaughlin.
QCOM: Accounting
As noted by Egan-Jones Proxy Services, “PricewaterhouseCoopers, LLP has been serving as the Company’s auditor for more than seven years. We believe that the companies should consider the rotation of their lead audit partner to ensure auditor objectivity, professionalism and independence.” Plus they screwed up the Oscars;). I voted “AGAINST.”
QCOM: Board Proposals
As mentioned above, I voted “Against” the pay package and members of the compensation committee, as well as the auditor.
QCOM: Shareholder Proposals
#4 Shareholder Proxy Access Amendments
James McRitchie (that’s me in the photo below) is the proponent. I voted ‘FOR.’
James McRitchie
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 50 institutional shareholders at QCOM bought or sold an average of 12% 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. QCOM and other companies have provided no evidence their restrictive proxy access bylaws are anything but an illusion.
The shareholder proposals on QCOM’s proxy, proposal #4 is advisory. The Board has full flexibility. For example, the Board could allow shareholders to lift the cap on nominating groups from 20 members to 50 members. That would give shareholders genuine proxy access. Vote FOR #4.
Votes Against Board Position in Bold 
As mentioned above, ProxyDemocracy.org had collected the votes of two funds when I voted. Proxy Insight reported additional votes from five other funds. All voted FOR #4 amendments to QCOM’s proxy access bylaws but funds that disclose their votes in advance are not typical. Many funds care more about getting corporate accounts than they do about monitoring and earning money for those buying their products. Even if you don’t subscribe to Proxy Insight, you can find many of the votes by clicking on the links in the Vote section of Shareholder Action Handbook.
| # | PROPOSAL TEXT | CorpGov | CALVERT | TRILLIUM |
|---|---|---|---|---|
| 1a | Elect Director Barbara T. Alexander | Against | For | For |
| 1b | Elect Director Jeffrey W. Henderson | For | For | For |
| 1c | Elect Director Thomas W. Horton | For | For | For |
| 1d | Elect Director Paul E. Jacobs | For | For | For |
| 1e | Elect Director Ann M. Livermore | For | For | For |
| 1f | Elect Director Harish Manwani | Against | Withhold | For |
| 1g | Elect Director Mark D. McLaughlin | For | For | For |
| 1h | Elect Director Steve Mollenkopf | Against | For | For |
| 1i | Elect Director Clark T. “Sandy” Randt, Jr. | For | For | For |
| 1j | Elect Director Francisco Ros | For | For | For |
| 1k | Elect Director Anthony J. Vinciquerra | For | For | For |
| 2 | Ratify PricewaterhouseCoopers LLP as Auditors | Against | For | For |
| 3 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | For | Against |
| 4 | Amend Bylaws Included in 1 FocusList: Proxy Access Has 1 user-contributed link with more info | FOR | For | For |
QCOM Proxy Access: Issue for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:
- 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 lite.
QCOM: Mark Your Calendar
The deadline for submitting a stockholder proposal for inclusion in our proxy materials for our 2018 Annual Meeting of Stockholders is September 21, 2017. Stockholder nominations for director that are to be included in our proxy materials under the proxy access provision of our Amended and Restated Bylaws (Bylaws) must be received no earlier than August 22, 2017 and no later than the close of business on September 21, 2017.
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 Bylaws, which contain additional requirements for submitting stockholder proposals and director nominations. See page 9 for further information.
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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