Inflated CEO salary is not the only problem with the Qualcomm share

<p>In a rare vote against the company’s executive compensation package, a majority of Qualcomm (NASDAQ: QCOM) shareholders recently said no to pay from CEO Steve Mollenkopf and the rest of the company’s named executives. Is there anything that should change your views on the Qualcomm share?

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It really should be taken into account.

Proposal number four on Qualcomm’s voting matters at the annual meeting on March 10, 2020 was “Approval, on an advisory basis, of our remuneration to the management.”

As I write this, the final vote for all five proposals is not included, but BlackRock (NYSE: BLK) has already said that they voted against the executive compensation and also against one of the board members of the HR and Compensation Committee.

The three directors are Irene Rosenfeld, former CEO of Mondelez International (NASDAQ: MDLZ) and committee chair, Harish Manwani, former COO of Unilever (NYSE: UL), and Kornelis Smit, vice president of Comcast (NASDAQ: CMCSA).

According to Bloomberg News, BlackRock voted against Manwani. I would have thought it would have been the chairman of the committee (Rosenfeld), but I’m sure there’s more to the story.

Let us first address the reason why BlackRock voted against Qualcomm’s compensation. And let us remember that BlackRock was not a lone wolf in this poll; California’s pension funds Calpers and Calstrs voted against the salary package, as did Norway’s sovereign wealth fund.

Prior to the vote, ISS (Institutional Shareholder Services) recommended that shareholders vote against the package with a $ 2 million increase in long-term share allotments and a $ 3.6 scholarship for Mollenkopf that secured a patent agreement with Apple (NASDAQ: AAPL) worth at least $ 4 million. $ 5 billion to Qualcomm.

“While the motivation for the CEO’s special award is convincing, the award lacks any performance or service criteria,” ISS said in its report.

BlackRock considered that the non-recurring shares granted were not meaningful given the performance of the Qualcomm shares. Furthermore, it considered that the company had failed to explain its reasoning behind the one-off price sufficiently.

Mollenkopfs compensation

In 2019, Mollenkoft received $ 23.1 million in total compensation. If you include the dividends earned, it was $ 14.9 million higher to $ 38.0 million. In 2020, he was expected to receive a total of $ 19.6 million in compensation. It does not include the one-time awards or awards that will win in 2020.

According to senior compensation consultant Willis Towers Watson (NASDAQ: WLTW), very few public companies voted down their leading compensation packages by shareholders in 2019. Only 3% saw a majority of shareholders vote against management compensation. Furthermore, 91% of public companies had at least 70% of shareholders vote for management remuneration.

So for BlackRock and others to vote down Qualcomm’s compensation package, you can be sure it’s going back to the drawing board to come up with something that is somehow tied to long-term performance.

Should Qualcomm shareholders be worried?

Since Mollenkopf was elected CEO on December 13, 2013, Qualcomm’s share has increased by 13.9% (including dividends) until March 12. Now I realize that it includes significant losses in recent weeks due to coronavirus, but it is still far behind the 56.6% increase for the SPDR S&P 500 ETF (NYSEARCA: SPY).

The conclusion of the Qualcomm share

I have never been a fan of how big public companies compensate their CEOs. Much of it has very little to do with how the company actually performs and more to do with how other companies pay their CEOs.

This has led to massive inflation in terms of the CEO’s salary. Meanwhile, average ranked employees are content with 2-3% increases, if that is the case.

Here’s what I had to say in February about Qualcomm:

“I said something similar in my article in January and called Qualcomm ‘an excellent company with an expensive stock. “Since the corona virus is expected to wreak havoc on the global economy, my opinion of Qualcomm’s valuation has not changed a bit … If you want to buy its shares, I would wait for it to fall a little more before taking the plunge. Under $ 80 it is a much better starting point. ”

Well, here we are under $ 80. Is it a purchase?

Despite the reservations about compensation from many in the industry who are much smarter than myself, including BlackRock, whether Mollenkopf is paid $ 22 or $ 23 million by 2020, it will still have to fight for the good fight in a faltering global economy.

Since my article in February, Qualcomm is undoubtedly a better buy from a stock price perspective. But in one month, the world has changed dramatically.

I would wait and see if you can pick up some in the mid $ 60’s or even the low $ 60’s. Something says that the sale has not stopped. I hope I’m wrong.

Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.