Cognizant Technology Solutions Proxy Voting Guide
Cognizant Technology Solutions Proxy Voting Guide by James McRitchie of CorpGov.net. Cognizant Technology Solutions Corporation (CTSH) provides information technology (IT), operations and technology consulting, infrastructure, and business process services worldwide. The firm is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of two fund families when I checked and voted. Their annual meeting is coming up on June 6, 2017
I voted FOR James McRitchie’s shareholder proposal to provide a shareholder’s right to act by written consent. See how and why I voted other items below. I voted with the Board’s recommendations 76% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Cognizant Technology Solutions Proxy Voting Guide: ISS Rating
From the Yahoo Finance profile: Cognizant Technology Solutions Corporation’s ISS Governance QualityScore as of May 1, 2017 is 7. The pillar scores are Audit: 5; Board: 8; Shareholder Rights: 7; Compensation: 4. 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: the Board and Shareholder Rights.
Cognizant Technology Solutions Proxy Voting Guide: Compensation
Cognizant Technology Solutions’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Francisco D’Souza, at $12M in 2016. I am using Yahoo! Finance to determine the market cap ($39B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Cognizant Technology Solutions is a large-cap company. According to EY Center for Board Matters, 3-yr average CEO compensation at large-cap corporations was $12.7M, so pay was just below that amount.Cognizant Technology Solutions’ shares outperformed the NASDAQ over the most recent two time period but underperformed over the last one and two year time periods; outperformed over last five and ten year time periods. Can it recover its former glory?
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.
SBUX earned a compensation score of “Some Concerns,”
we believe that shareholders cannot 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 not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote AGAINST this Proposal.
I wasn’t convinced, and voted FOR.
Cognizant Technology Solutions Proxy Voting Guide: 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. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar, so voted FOR.
Cognizant Technology Solutions Proxy Voting Guide: Board Proposals
As mentioned above, I voted “For” the pay package. I also voted a say-on-pay frequency of one year (item #3) With regard to #4 Approve Omnibus Stock Plan, Egan-Jones recommended that clients
After taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined below, we believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future. Therefore, we recommend a vote AGAINST this Proposal.
While I am concerned about the dilution, I voted FOR.
With regard to Board members, Egan-Jones
recommend that clients “WITHHOLD” votes from Affiliated outside directors John N. Fox, Jr. and Robert E. Weissman, current members of the Compensation and Governance committees; and Affiliated outside director John E. Klein, current member of the Audit, Compensation and Governance committees of the Board. We believe that key Board committees namely Audit, Compensation and Nominating committees should be comprised solely of Independent outside directors for sound corporate governance practice.
I agreed and did the same.
#6 Eliminate Supermajority Vote Requirement. Supermajority voting requirements entrench management, so I generally favor eliminating them. This one is a no-brainer, since even the Board favors John Chevedden’s proposal. Vote FOR. I don’t see that very often, a board supporting a shareholder proposal.
Cognizant Technology Solutions Proxy Voting Guide: Shareholder Proposals
#7 Provide Right to Act by Written Consent This my proposal (James McRitchie), so of course I voted “FOR.” A shareholder right to act by written consent is a way to decide an important emergency matter outside the annual meeting cycle. Egan-Jones recommended “for,” as did all shareholders announcing their votes in advance of the annual meeting.
Cognizant Technology Solutions Proxy Voting Guide: 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 two other funds. All voted FOR #7, my proposal for written consent. In fact, the others voted all items like Calvert.
| # | PROPOSAL TEXT | CorpGov | CALVERT | CBIS |
|---|---|---|---|---|
| 1a | Elect Director Zein Abdalla | For | For | For |
| 1b | Elect Director Betsy S. Atkins | For | For | For |
| 1c | Elect Director Maureen Breakiron-Evans | For | For | For |
| 1d | Elect Director Jonathan Chadwick | For | For | For |
| 1e | Elect Director John M. Dineen | For | For | For |
| 1f | Elect Director Francisco D’Souza | For | For | For |
| 1g | Elect Director John N. Fox, Jr. | Against | For | For |
| 1h | Elect Director John E. Klein | Against | For | For |
| 1i | Elect Director Leo S. Mackay, Jr. | For | For | For |
| 1j | Elect Director Michael Patsalos-Fox | For | For | For |
| 1k | Elect Director Robert E. Weissman | Against | For | For |
| 2 | Advisory Vote to Ratify Named Executive Officers’ Compensation | For | For | For |
| 3 | Advisory Vote on Say on Pay Frequency | One Year | One Year | One Year |
| 4 | Approve Omnibus Stock Plan | For | For | For |
| 5 | Ratify PricewaterhouseCoopers LLP as Auditors | For | For | Against |
| 6 | Eliminate Supermajority Vote Requirement | For | For | For |
| 7 | Provide Right to Act by Written Consent Has 1 user-contributed link with more info | FOR | For | For |
Cognizant Technology Solutions Proxy Voting Guide: 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.
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
- 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 constituting up to the greater of two directors or 20% of the of the total number of directors then serving on the board.
Cognizant Technology Solutions Proxy Voting Guide: Mark Your Calendar
Any stockholder proposals submitted in accordance with Rule 14a-8 must be received at our principal executive offices no later than the close of business on December 21, 2017. Corporate Secretary, Fax: 201-801-0243, Email: corporategovernance@cognizant.com.
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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