Next target in corporate governance hunting season: Applied Materials ( AMAT). Heading into the firm's annual shareholder meeting Wednesday, concerns center on Applied Materials' allegedly excessive executive compensation, use of options and the independence of its auditor. Citing such concerns, both San Francisco-based proxy adviser Glass Lewis and the California Public Employees' Retirement System are opposing several of the company's directors as well as a proposed increase in its stock compensation plan. Applied Materials has already made some concessions, but its shareholders have an opportunity to send another stern message to corporate America, although it's unlikely they'll seize the moment as, say, shareholders of Disney ( DIS). (Earlier this month, some 43% of Disney shareholders withheld their votes for Chairman and CEO Michael Eisner.) Applied posted a loss in fiscal 2003, reversing a profit from the previous year as its revenue slipped 11.6%, noted Greg Taxin, CEO of Glass Lewis. Meanwhile, Glass Lewis estimates that Applied's employees saw about $355 million in gains from exercising stock options last year. "That's the sort of thing that gives us heartburn," Taxin said. "Their employees have been very handsomely rewarded during a period when their business has not been very successful." In its proxy report issued last month, Glass Lewis also took aim at Applied's audit committee. Over the last two years, Applied has paid PricewaterhouseCoopers substantial fees for nonaudit services, Taxin noted. For instance, Applied paid PricewaterhouseCoopers $940,000 for tax advice and planning services in fiscal 2003, or 40.2% of the total amount it paid the accounting firm. That fact creates a potential conflict of interest and could compromise the integrity of PricewaterhouseCoopers' audits, Taxin said. "No firm that is generating a lot of revenue from tax and consulting services is likely to be harsh on the public accounting side."