In a rare vote against the company’s executive compensation package, a majority of Qualcomm (NASDAQ:QCOM) shareholders recently said no to the pay of CEO Steve Mollenkopf and the rest of the company’s named executive officers. Is this something that should change your views on Qualcomm stock?
It certainly should be taken into account.
Proposal number four on Qualcomm’s voting matters at the 2020 annual meeting March 10 was “Approval, on an advisory basis, of our executive compensation.”
As I write this, the final vote tallies for all five proposals aren’t in, but BlackRock (NYSE:BLK) has already said it voted against the executive compensation and also against one of the directors on the HR and Compensation committee.
The three directors are Irene Rosenfeld, the former CEO of Mondelez International (NASDAQ:MDLZ) and committee chair, Harish Manwani, a former COO at Unilever (NYSE:UL), and Kornelis Smit, vice-chairman of Comcast (NASDAQ:CMCSA).
According to Bloomberg News, BlackRock voted against Manwani. I would have thought it would have been the committee chair (Rosenfeld), but I’m sure there’s more to the story.
First, let’s deal with the reason BlackRock voted against Qualcomm’s compensation. And let’s remember that BlackRock was no lone wolf in this vote; California pension funds Calpers and Calstrs voted against the pay package as did Norway’s sovereign wealth fund.
Before the vote, Institutional Shareholder Services (ISS) recommended that shareholders vote against the package highlighting a $2 million increase in long-term stock awards and a $3.6 one-stock grant for Mollenkopf securing a patent settlement with Apple (NASDAQ:AAPL) worth at least $4.5 billion to Qualcomm.
“While the rationale for the CEO’s special award is compelling, the award lacks any performance or service vesting criteria,” ISS stated in its report.
BlackRock felt that the one-time stock awards granted didn’t make sense, given the performance of Qualcomm shares. Further, it felt the company failed to explain its reasoning behind the one-time awards adequately.
In 2019, Mollenkoft received $23.1 million in total compensation. If you include the stock awards that vested, it was $14.9 million higher at $38.0 million. In 2020, he was expected to receive $19.6 million in total compensation. That doesn’t include the one-time awards or the awards that will vest in 2020.
According to executive compensation consultant Willis Towers Watson (NASDAQ:WLTW), very few public companies had their executive compensation packages voted down by shareholders in 2019. Just 3% saw a majority of shareholders vote against executive compensation. Further, 91% of public companies got a least 70% of shareholders to vote for executive compensation.
So, for BlackRock and others to vote down Qualcomm’s compensation package, you can be sure it will go back to the drawing board to come up with something that’s tied in some fashion to long-term performance.
Should Qualcomm shareholders be worried?
Since Mollenkopf became CEO-elect on Dec. 13, 2013, Qualcomm’s stock has increased by 13.9% (including dividends) through March 12. Now, I realize that includes significant losses in recent weeks due to the coronavirus, but it’s still well behind the 56.6% increase for the SPDR S&P 500 ETF (NYSEARCA:SPY).
The Bottom Line on Qualcomm Stock
I’ve never been a fan of how big public companies compensate their CEOs. A lot of it has very little to do with how the company actually performs and more to do with how other companies are paying their CEOs.
That’s led to massive inflation when it comes to CEO pay. Meanwhile, average rank-and-file employees make do with 2-3% raises, if that.
Here’s what I had to say in February about Qualcomm:
“I said something similar in my January article, calling Qualcomm ‘an excellent company with an expensive stock.’ With the coronavirus expected to wreak havoc on the global economy, my opinion of Qualcomm’s valuation hasn’t changed one bit…If you’re looking to buy its stock, I’d wait for it to fall some more before taking the plunge. Below $80, it’s a much better entry point.”
Well, here we are below $80. Is it a buy?
Despite the reservations about compensation from many in the industry far smarter than myself, including BlackRock, whether Mollenkopf gets paid $22 or $23 million in 2020, it’s still going to have to fight the good fight in a global economy that’s teetering on the edge.
Since my article in February, Qualcomm is undoubtedly a better buy from a share price perspective. However, in a month, the world has changed dramatically.
I’d wait to see if you can pick some up in the mid-$60s or even the low $60s. Something tells me the selling hasn’t ended. I hope I’m wrong.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.