Cadence Design Systems: Pay Quadruples When President Becomes CEO w Unnecessary Option Grant

Annual Meeting: May 5

 Total compensation for Anirudh Devgan, who became CEO in July 2021, was $21,735,794, quadrupling from her pay of $5,543,890 for 2020 when she was President.  The company signed employment contracts with both Devgan and Lip-Bu Tan, Executive Chair and Former CEO. By creating the paid position of Executive Chair the company has added an additional highly paid executive without providing any clear benefit to shareholders. The former chair of the board John Shoven, became lead independent director. Shoven will be paid $80,000 as a lead independent director fee. Last year Shoven received the same fee to serve as chair.

The agreement also includes an unusual provision. Specifically it provides that “should such Executive Chair service terminate prior to March 31, 2024, Mr. Tan will continue to serve as a non-officer employee through March 31, 2024, performing such duties as designated by the CEO or the Board.” This suggests that this may in fact be a generous retirement benefit and not a contract of substance.

In addition, shareholders may object to compensation awarded to Devgan as part of the transition. Dr. Devgan received a one-time promotion grant of stock options with a grant date fair value of $15,000,000. There is no indication such a grant was necessary. Devgan has been with the company since 2012. He already had significant options (approximately 215,571 shares) from prior grants. Generally, one-time grants for new CEOs are offered to replace equity they may have lost by leaving a prior employer. The company said it made other increases in Devgan’s compensation, “to bring his CEO cash compensation in line with Cadence’s historical practices while providing an overall competitive pay opportunity.” Those are appropriate to reflect the change of position, but they only raise more questions regarding the need for the one-time award. It is unlikely Devgan required such an incentive. The company also reimbursed Devgan for the legal fees she incurred in negotiating her agreement.

 There are other concerns with compensation as well, including the fact that the company annual bonus is based on two six month assessment periods. Shareholders are concerned for the long-term rather than the short term.