Skyworks Solutions: Executives Shouldn’t Get an “A” for Effort & Neither Should Compensation Committees
Annual Meeting: May 11, 2022
Total compensation for Skyworks Solutions Chair and CEO Liam Griffin was $16,150,421 for 2021. At last year’s annual meeting an astonishing 77.7 percent of shareholders voted against the proposal. ISS is recommending shareholders vote against pay again this year. According to a supplementary filing by Skyworks Solutions, ISS wrote: “While changes were made to the long-term incentive program, the proxy states that the primary concern underlying the failed vote related to the November 2019 one-time awards and the board states only that it does not anticipate making additional one-time awards to NEOs in the future. . . . [S]hareholders may have expected a more definitive statement against their future use such as a commitment to limit their use only to extraordinary circumstances.”
Let’s look a bit at some of the changes the company is touting. The company increased the target goal for the FY21 relative TSR LTI awards to the 55th percentile of the peer group. If they perform just slightly better than average, the executives will receive their full target bonus. It is true that what they had last year was worse, but this improvement still does not reflect the idea that targets should be challenging.
The company also notes that it “extended the performance period for the LTI relative EBITDA margin metric to two years.” Recall that the LT in LTIP stands for long-term. Two years is insufficient for long-term.
The performance periods have been an issue even with the annual bonus. Beginning in 2020 the company took the extraordinary step to divide even the short term annual bonus to shorter terms with two six-month performance periods. In its additional proxy statement the company said that after talking to shareholders in January and February “The Committee commits to return to one-year performance periods for the short-term incentive plan as soon as the Committee determines that market conditions would allow the establishment of meaningful full-year goals.”
Perhaps the single most egregious action last year was the ISS referenced large “one-time” equity award. The Committee’s response to shareholder ire, “The Committee is committed to not making one-time equity awards to its executive officers absent extraordinary circumstances.” The ‘extraordinary circumstances’ loop-hole allows broad discretion. What circumstances, in 2022, are even ‘ordinary’? The company acknowledges the limitations to their vow, but attempts to justify them.
All in all, the response to the high level of opposition is lacking. Too often shareholders have treated companies that make slight improvements in pay packages as if they were recalcitrant children who need to be rewarded for any effort, no matter how slight. That is not the appropriate response. I believe ISS made the correct choice here.