Gilead Sciences (GILD), a biopharmaceutical company, discovers, develops, and commercializes therapeutics in the areas of unmet medical needs in the United States, Europe, and internationally. Most shareholders do not vote because reading through 80+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I voted and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read my rationale), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.
Gilead Sciences : ISS Rating
From the Yahoo Finance profile:
Gilead Sciences, Inc.’s ISS Governance QualityScore as of April 1, 2018 is 3. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 4; Compensation: 4.
Gilead: Board Proposals
1. Gilead Proxy Voting Guide: Directors
Egan-Jones Proxy Services recommends “For,” with the exception of: 1A) John F. Cogan, Ph.d., 1E) John C. Martin, Ph.d., 1G) Richard J. Whitley, M.D. Martin recommended against because of cybersecurity issues; Cogan and Whitley because they have served for more than ten years (with compromised independence) and sit on key committees, which should be composed only of independent directors. Although I agree with the thrust of their arguments, I am not ready to set that as my policy.
Since I voted against the pay package, I also voted against all members of the compensation committee: Per Wold-Olsen (Chair) and Kevin E. Lofton.
2. Gilead: Ratify Auditors
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 notes the auditor has been serving as the Company’s auditor for more seven years and their independence is compromised. They also several other issues. I also believe that the companies should consider the rotation of their audit firm to ensure auditor objectivity, professionalism and independence. I have not set a specific number of years. In this case I voted FOR.
3. Gilead: Executive Compensation
Gilead’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO John F. Milligan at $15.4M. I’m using Yahoo! Finance to determine market cap ($85B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Gilead 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 2014, so pay was well over that amount.
Gilead shares underperformed the S&P500 over the most recent one, two, and five year time periods. At least Gilead does not appear on As You Sow‘s list of the 100 Most Overpaid CEOs. Prior reports have shown that being on that list is correlated with lower returns in subsequent years. The ratio of reported CEO’s annual total compensation to median employee’s total annual compensation for fiscal year 2017 is 94 to 1.
Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures wealth creation in comparison to other widely held issuers. “Neutral” is their rating given on compensation issues for Gilead. Egan-Jones concludes:
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.
Given underperformance, above median pay and my concern about wealth distribution, I voted “AGAINST” the say-on-pay item.
Gilead: Shareholder Proposals
4. Independent Chairman
This proposal is from John Chevedden and is nearly identical to many I have submitted, so of course I voted FOR. The Board would have the discretion to phase in this policy for the next CEO transition. Egan-Jones also recommended for.
5. Written Consent
This proposal is from James McRitchie. The proposal simply asks Gilead Sciences to undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. It is basic good governance. Egan-Jones also recommended for.
Proxy Democracy was down. Proxy Insight reported on on Canada Pension Plan (CPPIB), Texas Teachers, Calvert, Trillium, CBIS, Domini, and Australia’s Superannuation. CPPIB, Texas Teacher, Superannuation all voted FOR every item, including both shareholder proposals.
Calvert voted against all directors and pay; for auditor and both shareholder proposals. Domini voted against John C. Martin and pay; for all other items, including both shareholder proposals. CBIS voted against the auditor; for all other items, including both shareholder proposals.
- Directors: Vote AGAINST Kevin E. Lofton and Per Wold-Olsen.
- Auditor: Vote For.
- Ratify Executive Pay: Vote Against.
- Independent Chair: Vote For.
- Written Consent: Vote For.
Gilead: Issues for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners:
- No written consent.
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- Proxy access provisions are Lite. A shareholder or group of no more than 20 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.
Gilead: Mark Your Calendar
You may submit proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in our Proxy Statement for the 2019 annual meeting of stockholders pursuant to SEC Rule 14a-8, the Corporate Secretary must receive the written proposal at our principal executive offices no later than November 26, 2018. Such proposals also must comply with SEC regulations under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding the inclusion of stockholder proposals in company proxy materials. Proposals should be addressed to:
Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, California 94404
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. For more on the subject, see CEO Pay Machine Destroying America.