Tuesday, November 24, 2015

Proposals on Gender Pay Gap, Compensation Principles Will Not Reach Apple Shareholders

By John Filar Atwood

Apple Inc. will not be including three shareholder proposals—two on reducing the gender pay gap and one on adopting new compensation principles—in the proxy materials for its upcoming shareholder meeting. The SEC confirmed that the proposal on compensation principles may be omitted by the company, and the two gender gap proposals have been withdrawn by the proponents.

Compensation principles. The proposal regarding new compensation principles was submitted by Jing Zhao, and called for Apple to reform its compensation committee to include outside independent experts from the general public to adopt new compensation principles responsive to America’s general economy, such as unemployment, working hour and wage inequality. Zhao expressed concern at the high salaries earned by Apple managers, and cited articles suggesting that wage inequality was one of the sources of financial instability in the U.S.

He noted that Apple’s chief financial officer was paid $68.5 million in 2012, its operations senior vice president was paid $68.7 million in 2012, and its retail and online stores senior vice president was paid $73.3 million in 2014. Zhao requested that these pay levels and his proposal be evaluated in the context of Apple’s overall compensation policy, including the pay and working conditions for supply-chain workers in China, where most of Apple’s products are made.

Ordinary business exclusion. In its letter to the Commission, Apple argued that Zhao’s proposal was excludable under Rule 14a-8(i)(7), which permits a company to omit proposals that relate to a company’s ordinary business operations. The company pointed out that as noted in Staff Legal Bulletin No. 14A (July 12, 2002), the staff permits exclusion under Rule 14a-(8)(i)(7) of proposals that concern general employee compensation matters.

The Staff Legal Bulletin stated that the compensation of a company’s general workforce is considered to be so fundamental to management’s day-to-day operation of the company’s business that it is not appropriate for shareholder oversight through the shareholder proposal process. These proposals are differentiated from proposals that relate solely to the compensation of senior executives and directors, which are often deemed to involve a significant policy issue.

Apple argued that Zhao’s proposal is concerned with compensation principles that apply to all of its employees, not just Apple’s senior executives and directors. The SEC staff concurred with Apple, and stated that the company may omit Zhao’s proposal from its proxy materials on the grounds that it relates to compensation that may be paid to employees generally and is not limited to compensation that may be paid to senior executive officers and directors.

Gender gap proposals. The proposals on gender-based pay inequality were submitted by Pax World Mutual Funds and Arjuna Capital/Baldwin Brothers Inc. on behalf of Adam Seitchik. Specifically, the shareholders asked Apple to prepare a report by September 2016 on its policies and goals to reduce the gender pay gap. They said that in order for investors to assess Apple’s strategy and performance, the report should include the percentage pay gap between male and female employees, policies to improve performance, and quantitative reduction targets.

In support, the shareholders said that despite evidence linking management diversity and financial performance and more robust decision-making, the technology industry still struggled to attract and retain women employees. At Apple, 31 percent of the company’s U.S. employees are women, and they account for 28 percent of the company’s leadership, according to the proponents.

The proponents cited a report which found that pay equity appears to be an important driver of gender diversity, and actively managing pay equity is associated with higher female representation at the professional through executive levels. The proponents argued that well-managed companies should understand the equity attributes of their pay at all levels of the corporation, by gender as well as other factors such as race, ethnicity, experience, background and discipline.

Ongoing dialogue. In Apple’s letter to the SEC, it noted that after discussions with the company, both proponents agreed to withdraw their gender gap proposals. The proponents said that this was the result of a commitment by Apple to engage in an ongoing dialogue regarding gender pay equality with both shareholders.

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