22% of Bristol-Myers Squibb shareholders favor report on how drug pricing risks are integrated into exec incentive programs

Board sent clear message amid growing investor concern over metrics used to reward pharma executives. 

NEW YORK, NY, TUESDAY, MAY 1^ST, 2018 – At today’s annual shareholder meeting for Bristol-Myers Squibb (BMS) a first-time shareholder proposal questioning the links between executive compensation packages and drug price increases received a solid show of support from investors, signaling to the board of directors that this issue is key to investor confidence about the long-term sustainability of the company.   

Investors view executive pay packages as a window into the quality of board decision-making. In the context of drug pricing, investors are eager to understand if companies are rewarding executives for short-term profit gains through drug price increases or rewarding longer-term investment in the company related to research and development and successful innovation. 

The resolution was filed by members of the Interfaith Center on Corporate Responsibility, a shareholder coalition that has been engaging the industry for decades on questions of corporate accountability, including business risks posed by drug pricing increases that have important implications for long-term shareholder value as well as access and affordability of medicines. Four other pharmaceutical companies received a similar proposal: Abbvie, Amgen, Biogen and Eli Lilly. 

The proposal specifically requested that the board: Urge the Compensation Committee to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into BMS’ incentive compensation policies, plans and programs for senior executives and should include discussion of whether incentive compensation arrangements reward, or not penalize, senior executives for (i) adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding the level or rate of increase in prescription drug prices; and (ii) considering risks related to drug pricing when allocating capital. 

Said Cathy Rowan of Trinity Health, lead filer of the proposal, “Our resolution asked how these very real concerns are being incorporated into corporate governance policies on executive compensation and, importantly, if these policies and practices are consistent with our company’s stated mission of ‘providing access to prescription medicines at fair prices.’ We are gratified to see such strong support from fellow shareholders and look forward to increased transparency and reporting on this important topic.” 

Two recent analyses within the span of as many weeks revealed the extent to which drug prices have soared:

• A recent Pharmacy Benefits Consultants review[i] of average wholesale drug prices from January 2017 to March 2018 found “twenty prescription drugs saw their prices rise by more than 200%”, and;
• A comprehensive review by the Senate Homeland Security and Governmental Affairs Committee Minority[ii] revealed that “prices for each of the 20 most-prescribed brand-name drugs for seniors have increased dramatically every year for the past five years” at a rate that is “approximately ten times higher than the average annual rate of inflation.” 

In their proposal, the investors argued that reactions from the public, health care payers, policymakers and prescribers to high drug prices pose serious legal and reputational risks, and instead recommend proper alignment of executive incentives with strategies to mitigate these business risks.

The proposal withstood a BMS challenge at the SEC to have the proposal omitted from the company proxy and was further endorsed by proxy advisor ISS. In their analysis of the proposal, ISS wrote:  Regular reporting on the integration of risks related to public concern over drug pricing strategies into incentive compensation arrangements may be an effective way to further incentivize executives to put in place a plan to mitigate such risk. Furthermore, investors are demonstrating increasing interest in drug pricing issues and how companies are managing related risks. 

Donna Meyer of Mercy Investment Services observed, “As investors, we are concerned that misaligned incentive pay may lead executives to sacrifice long-term growth from drug discovery and other innovations in favor of price hikes which yield immediate but unsustainable results. As a key driver of strategic decision-making, executive compensation metrics are a cornerstone of sound governance policies requiring board oversight. We are gratified that so many of our fellow shareholders agreed to support our call for further disclosure around this.”