Adobe Systems
Annual meeting: April 9, 2020
CEO Shantanu Narayen’s 2019 total disclosed compensation of $39,145,631, as reported in Adobe’s 2020 proxy statement, is an astonishingly high number even in the world of CEO pay. Yet, it represents far less than the wealth he actually took home. Narayen realized $67.3 million through shares acquired through vesting. Over the past four years he has realized $231 million dollars through the vesting of such shares. He has not held onto a significant number of these shares. Last year I wrote about how Adobe is an example of a company whose summary compensation table figures vastly understate received wealth and went into some detail on how awards were valued and how they ultimately paid out.
This year I want to make a different point. In the coming weeks, months, and years we will be reading in many proxy statements that things outside the executive’s control drove down stock price. That will be absolutely correct. Compensation committees might use discretion for goals not reached or even exclude the impact of the virus through accounting magic. Natural human sympathy may then persuade investors to accept such practices including one-off grants or extra awards.
However, it is important to remember that it is also absolutely correct that things outside of the executive’s control drove up stock price over the past several years. I’ve yet to read a proxy statement where the board says payments were higher than anticipated due to performance items beyond the executive’s control. I have never seen a company that made a downward adjustment because a company benefitted from the Tax Cut and Jobs Act. If buybacks or low fed rates kept the bull market raging, no compensation committee publicly declared that this was beyond the role of the individual CEO.
My philosophy – and I think this makes sense for investors – is that there should be equal responsibility for external factors, whether they move value up or down. In that context, it will be particularly important to track whether equity compensation to executives has resulted in increased ownership and alignment with shareholders, or solely with wealth windfalls.
Last year Adobe System’s proposal on advisory compensation was supported by 93.8 % of votes cast. Several investors voted against under rationales (as reported by Proxy Insight) because some awards were allowed to vest below median performance, because the company has severance packages more generous than normal practice, and because of inadequate disclosure. A few also made the point that Narayen’s pay was above that of peers. Presumably, they referred only to the pay as it appeared in the summary compensation table. As investors continue to grapple with executive compensation, accumulated wealth may become a larger consideration. I believe that would be entirely appropriate.