Vote No on Compensation

IOPA members conducted two Vote No Campaigns:

Cardinal received 39% support.Rhode Island’s General Treasurer called on Cardinal Health (CAH) shareholders to Vote No on Cardinal's Say on Pay package at its November 4, 2020 AGM. Between 2006 and 2012, Cardinal distributed 11 billion opioid pills, contributing to an epidemic that has claimed the lives of nearly 100,000 Americans.   Rhode Island’s General Treasurer’s SEC Exempt Solicitation is available here. Blackrock Inc. explained its vote against management at Cardinal Health on page 37 of this recent report, citing “concerns about the committee’s lack of consideration of the significant U.S. $5.6 billion opioid-related litigation charge in setting executive compensation awards.

Following discussions with the IOPA, Cardinal Health announced changes to its executive compensation program on September 10th, 2021. IOPA has responded, recognizing the steps the board has taken but articulating ongoing concerns with accountability for legal fines and settlements in the structure of Cardinal's compensation plans. Click here for the IOPA's analysis.

AmerisourceBergen received 72% of the independent votes cast. The Connecticut State Treasurer called on AmerisourceBergen (ABC) shareholders to reject ABC's compensation on its proxy for its March 11, 2021 AGM.  The proposal reflects payouts for certain executives that are significantly above target despite a $6.6 billion legal charge made in connection with the proposed settlement of opioid-related claims – triggering the company’s largest-ever loss.  The Connecticut And Rhode Island Treasurers’ Sec Exempt Solicitation is available here. 

In 2021, McKesson was the first pharmaceutical corporation to respond to the IOPA’s demand by docking executive bonuses after the company booked $8.1 billion in charges for anticipated settlement costs of opioid-related litigation. While it has not yet applied a standard approach to addressing litigation settlement costs when calculating executive pay in future – which we urged the company to do – the move signals a step towards accountability for the results of decisions made.

IOPA sent letters to Chairs of the Board Compensation Committees at eleven companies (Assertio, Endo, JNJ, MNK, MCK, RAD, Teva, Viatris, WMT, WBA, and CVS).   The letters serve as notice that the IOPA is scrutinizing how executive compensation is handled in light of charges being booked for opioid settlements.

The letters say, in part: ”Against this backdrop of continued concern, companies named in Attorneys General and city and state lawsuits have booked charges against earnings of $5 billion and, in some case, more, in anticipation of settlements.  In most cases, companies insulate executives from the impact of these charges when calculating incentive compensation metrics.  And in most cases companies fail to disclose the specific amounts excluded.

In all cases, investors pay the price for these settlements in lost profits, often five to ten years’ worth.  These are profits that could have been reinvested in research and development, human capital or acquisitions. 

We ask you to consider that investors are increasingly scrutinizing these arrangements and there is evidence that the environment in which these decisions are being made has changed.   Investors are voting against proposed executive incentive pay structures at companies that booked billion-dollar opioid settlement charges, and at the same time, boosted executive incentive pay.  In the recent case of Cardinal Health, the company recorded a $4.6 billion charge for opioid settlement costs at the same time it awarded the CEO an above target annual incentive award.  However, following a “vote no” shareholder campaign, holders of 39% of shares opposed the company’s “say on pay” proposal.”

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