When pharmaceutical companies set targets for executive performance, and base the amount of their compensation on meeting those targets, they often use profit metrics that are not based on
Generally-Accepted Accounting Principles (like “Adjusted Earnings Per Share”) which routinely filter out legal settlement costs and fines from the end result.

We believe this is a salient issue for investors because performance metrics for executives help incentivize the right level of risk-taking. If they routinely filter out the real-world results of that risk-taking, the incentives are skewed and executives are not held accountable for their decisions.

An IOPA investor brief. Copyright 2023.