Cognizant 2019

Cognizant 2019 Proxy Guide

Cognizant 2019 annual meeting is June 4th. To enhance long-term value. Vote AGAINST Fox and Klein, pay & auditor. Vote FOR Political Disclosure and Independent Board Chair.

Cognizant Technology Solutions Corporation (CTSH), a professional services company, provides consulting and technology, and outsourcing services worldwide. Most shareholders do not vote.  Reading through 72+ pages of the proxy takes too much time. Your vote could be crucial. Below, how I voted and why.

If you have read these posts related to my portfolio and proxy proposals for the last 24 years and trust my judgment, skip the 8 minute read. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 60% 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 2019: ISS & Sustainalytics Ratings

From the Yahoo Finance profile: Cognizant Technology Solutions Corporation’s ISS Governance QualityScore as of April 1, 2019 is 3. The pillar scores are Audit: 5; Board: 1; Shareholder Rights: 2; Compensation: 6.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. We need to pay close attention to Audit and Compensation issues.

Environment, Social and Governance (ESG) Ratings

Total ESG score 65 86th percentile Outperformer

  • Environment 70, 85th percentile
  • Social 64, 91st percentile
  • Governance 61, 60th percentile

Cognizant 2019 Proxy Voting Guide: Board Proposals

1. Cognizant 2019: Directors

Egan-Jones Proxy Services recommends a vote FOR directors with the exception of John N. Fox, Jr. and John E. Klein. Both directors have served on the Board for 10 years or more and are considered affiliated, no longer fully independent. As such they should not be on key Board committees, namely Audit, Compensation and Nominating committees.

Vote AGAINST John N. Fox, Jr. and John E. Klein.

2. Executive Compensation

Cognizant’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Former President Rajeev Mehta at $27.9M. I’m using Yahoo! Finance to determine market cap ($35.2B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Cognizant 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. Cognizant shares underperformed the NASDAQ over the most recent one, two, and fimylogiq_logove year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 152 to 1.

According to MyLogIQ, mean CEO compensation in the Technology sector was $7M, median was $4M last year. Pay at Cognizant puts them in the top 90% of Technology CEOs ($15.4M).

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. They believe the company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.  Egan-Jones

Given above median pay (both for large-cap and Tech sector) and my concern for growing wealth inequality, I voted against. I also voted against the compensation committee, since they recommended the pay package

Vote AGAINST.

3. Ratification of Independent Auditor

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. PricewaterhouseCoopers, LLP has served more than seven years. No other issues appear significant.

Vote AGAINST.

Cognizant 2019 Shareholder Proposals

4. Shareholder Proposal: Political Disclosure

This good governance proposal is mine (James McRitchie), so of course I voted for it. Egan-Jones disagrees. The Company argues they comply with the laws. However, the laws allow dark money contributions. Anyone concerned with our ability to ensure Cognizant’s political contributions are in the best interests of shareholders should vote FOR this proposal.

5. Shareholder Proposal: Independent Board Chair

This good governance proposal is from John Chevedden. Now is a good time to adopt this proposal since our current Chairman of the Board, John Klein, has 15-years tenure and it may be a good time soon to have director refreshment in this important position and make sure that Mr. Klein’s successor is independent. As Egan-Jones notes, “there is an inherent potential conflict, in having an Inside director serve as the Chairman of the board.”

Vote: FOR

Cognizant 2019 CorpGov RecommendationsProxy Insight

Proxy Insight had reported the votes of five funds when I last checked (see top graphic). They may have updated by the time I post this. 

You can also try looking up a few funds in our Shareowner Action Handbook to possible see more.


CorpGov Votes:

  1. Directors: AGAINST Fox and Klein.
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Declassify Board of Directors: FOR
  5. Disclose Political Contributions: FOR

Cognizant 2020: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
  • Proxy Access lite.

Cognizant 2020: Mark Your Calendar

SEC rules permit shareholders to submit proposals for inclusion in our proxy statement if the shareholder and the proposal meet the requirements specified in Rule 14a-8 under the Exchange Act (“Rule 14a-8”).

When. Any shareholder 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 20, 2019.
Where. Proposals should be sent to our secretary. See “Helpful Resources” on page 72.
What. Proposals must conform to and include the information required by Rule 14a-8.

Secretary
Fax: 201-801-0243
[email protected]

…or mail to our principal executive offices,
attention to the applicable contact

Our Principal Executive Offices

Cognizant Technology Solutions
Glenpointe Centre West
500 Frank W. Burr Blvd.
Teaneck, New Jersey 07666

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,” chosen by aspiration. 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.

   

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One Response to Cognizant 2019 Proxy Guide

  1. James McRitchie June 7, 2019 at 11:01 am #

    Nice to have a win at Cognizant on political disclosure. We won 53.6%
    8-K. Thanks to The Center for Political Accountability for helping us and many others drive change in this area of critical importance. Expect the topic to be even more popular in 2020.

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