Intel: One of the Highest CEO Pay Packages This Year at a Company that Has Been on Our Overpaid List for the Last Five Years

Intel

Annual Meeting:  May 12, 2022

CEO Pat Gelsinger, who re-joined Intel in February 2021 has one of the highest reported total compensation packages reported so far this year: $178,590,400. Intel has been on As You Sow’s list of the 100 Most Overpaid CEOs for the last 5 years. Last year 61.7 percent of shareholders voted against compensation there. Information regarding minor changes the company made following that low vote is mentioned later, but the lack of substantive response to last year’s failed is a secondary concern to the massive overpayment and I will focus on that.

Gelsinger had made his career at Intel, joining in 1979, and rising to the position of Chief Technology Officer from 2000 to 2005 before leaving the company. The proxy statement notes that of Gelsinger’s “one-time new-hire equity awards with a target value of approximately $110 million, . . .  almost 50% of the awards’ target value replacing comparable incentives Mr. Gelsinger forfeited at his prior employer”,, business software company VMware. Shareholders have no way of evaluating how accurate this estimation is regarding value of VMware shares.

The company points out that “73% of the [Intel] awards’ target value requires significant stock price appreciation in order for the awards to be earned.” Perhaps VMware’s proxy made similar statements last year. One way that CEO pay inflates is that “at risk” compensation is often replaced by more compensation that is less at risk when a CEO transitions to a new company.

Recall that Gelsinger spent decades working for Intel. Among other things, this package may show the flaws of a system that pays CEOs multiples of what it pays other executives. Had there been a fairer and more generous wage structure throughout the company, not just a jackpot on becoming CEO, perhaps there could have been a smoother and less expensive transition.

The proxy statement goes on to say that next year that pay for the coming year is expected to go down.  “Gelsinger’s 2022 target total direct compensation of approximately $26.3 million is aligned at the 50th percentile of our peer group.” I don’t have the capacity to do a deep dive into the peer group, but will simply point out that there are many ways to create the peer group that inflates pay. Even if this amount truly was the median of the best selected set of peers, the idea that a pay package of $26.3 million is reasonable on its face is something I would question as well.

Commentator Alan Murray, who calls himself a fan of Gelsinger, points out another reason to be concerned about the compensation package: “Intel’s turnaround plan depends on significant taxpayer subsidies from the U.S. and Europe to support his re-shoring of chip manufacturing. . . . . if governments are going to underwrite the risks of Gelsinger’s plan, shouldn’t they also participate equally in the rewards?”

As noted above, the company had a failed pay vote last year. The company did engage shareholders, if one defines engagement as phone calls and meetings. Their response was inadequate. Calvert Research and Management makes its analysis public, and I quote in full their reasons for voting against Intel’s pay again this year:

“The CEO's total pay exceeds 4 times the average NEO pay. CEO pay exceeds the 75th percentile of peers and the company's performance is below the 75th percentile of the peer group. There are concerns regarding the compensation committee's limited degree of responsiveness to last year's failed say-on-pay vote. While the proxy discloses engagement efforts and shareholders' feedback, not all concerns are clearly fully addressed. Moreover, other pay program changes that were made following shareholder outreach are not all clearly positive. This falls short of the robust response that is expected following a failed vote. There are also unmitigated pay-for-performance concerns for the year in review. Annual incentive payouts were made well above target against goals that were lowered after their initial establishment due to a shift in company strategy. Further, NEO participation in a second bonus opportunity is questionable, when the primary program provides substantial pay opportunities (including the new CEO's relatively high target STI opportunity). Moreover, the company will reduce the proportion of performance-conditioned equity for non-CEO NEOs beginning with FY22 grants. Finally, some investors may find that the disclosed changes to both STI and LTI programs for next year do not clearly improve program rigor based on the current level of disclosure. In light of both responsiveness and unmitigated pay-for-performance concerns, a vote AGAINST this proposal is warranted.”