Apple investors will have the opportunity to vote on a shareholder proposal asking the company to "engage multiple outside independent experts or resources from the general public to reform its executive compensation principles and practices" at the company's 2017 annual meeting according to an October 26 No-Action letter issued by the Securities and Exchange Commission. The proposal was submitted by activist gadfly Jing Zhao who had some very broad and specific reasons for submitting the proposal. In suggesting that Apple hire outside experts to reform the company's pay program, Zhao notes that the company's current consultant "cannot represent the general public" to "advise fair, just and ethical compensation principles." Further, Zhao's explanation notes that the same salary, annual incentive and long-term incentive was awarded to five of six executives and calls into question the usefulness of the compensation committee if "it could not differentiate the contribution of the tremendously different functions of" each member of the executive team. Zhao also cites economist Thomas Piketty and income inequality as reasons for the proposal's importance. Apple attempted to exclude the proposal on the basis that it was vague, part of ordinary business, and that the board lacked the authority to implement the proposal. The SEC disagreed with Apple and the proposal will appear in the company's proxy statement.
The SEC's decision potentially sets the stage for shareholder to essentially require companies to hire a different consultant for the purpose of reviewing and revising their executive compensation policies. The decision builds on the SEC's foray into traditional areas of corporate management. In 2015, the SEC deemed questions of corporate capital structure as being an acceptable subject for shareholder proposals when it permitted a proponent to submit a proposal which sought a preference of share buybacks over dividends when returning cash to shareholders. The SEC's decision also signals that it will continue the much more restrained views with regard to whether proposals can be excluded.