McKesson cuts CEO pay after shareholders demand opioid accountability

15 min read
0
11
McKesson cuts CEO pay after shareholders demand opioid accountability


The country’s largest drug distributor is trimming executive pay in what industry watchdogs describe as a rare step toward holding individuals accountable for the consequences of the opioid epidemic.

The board of directors at McKesson Corp. this week said it would dock the pay of CEO Brian Tyler by $2.9 million due to the company’s tentative agreement to settle opioid charges for $8.1 billion.

In reviewing the settlement charge, which led to the company’s largest annual loss on record, the board said in a proxy statement Tuesday that it “sought to take decisive action on executive compensation to avoid retention issues and eliminate uncertainty for employees.”

The board didn’t say that any executive did anything wrong in their oversight of opioid distribution. Excluding the opioid settlement, Tyler and other top executives surpassed all of their performance targets and were in line for large bonuses, the statement said. However, the board determined that “above-target payouts would be inappropriate in light of the scale of the settlement charge.”

The reduction, while relatively small — Tyler was still awarded a pay package worth an estimated $14.8 million in cash and equity — represented a modest victory to shareholders who have demanded accountability at the companies that played a role in the opioid crisis.

It marked a turnaround for San Francisco-based McKesson, which previously resisted calls to claw back some of the millions of dollars it paid former CEO John Hammergren, and among drug company boards more broadly, which have continued to boost executive pay despite growing financial and reputational costs stemming from opioid misuse.

“Companies are just beginning to listen and hold their executives accountable for these major oversight failures and costs related to the opioid epidemic,” said Illinois State Treasurer Michael Frerichs, who manages $38 billion in state funds, including investments at top opioid companies.

“This announcement at McKesson is an important first step,” he said.

Of the four drug giants that agreed last November to pay a combined $26 billion to settle claims brought by cities and counties impacted by the opioid epidemic, McKesson is the only company to lower executive pay as a result of the expected costs of that settlement.

The other three companies, Cardinal Health, AmerisourceBergen and Johnson & Johnson, excluded the settlement costs from their calculations of CEO pay. Their use of “adjusted” accounting methods sparked a backlash from activist groups, including the Investors for Opioid and Pharmaceutical Accountability, who said these adjustments give corporations too much discretion to manipulate the key performance measures on which executives are judged and let CEOs off the hook for problems that occurred under their watch.

Investor support for pay packages — usually greater than 90 percent in a typical year — dropped below 65 percent at all three companies.

More shareholders oppose

pay packages for drug CEOs

Shareholder support for CEO pay packages plummeted as drug giants proposed to shield executive pay from the cost of opioid legal settlements.

The pay proposals all passed.

Portion of shareholders voting

for executive pay packages

Note: Time periods reflect fiscal years for the executive pay packages

under consideration.

Source: Company SEC filings

More shareholders oppose

pay packages for drug CEOs

Shareholder support for CEO pay packages plummeted as drug giants proposed to shield executive pay from the cost of opioid legal settlements. The pay proposals all passed.

Portion of shareholders voting for executive pay packages

Note: Time periods reflect fiscal years for the executive pay packages under consideration.

Source: Company SEC filings

More shareholders oppose pay packages for drug CEOs

Shareholder support for CEO pay packages plummeted as drug giants proposed to shield executive pay from the cost of opioid legal settlements. The pay proposals all passed.

Portion of shareholders voting for executive pay packages

Note: Time periods reflect fiscal years for the executive pay packages under consideration.

Source: Company SEC filings

But all three companies adopted the pay proposals, awarding their CEOs with multimillion-dollar payouts that did not reflect the impact of the opioid settlements.

“Until now, I am not aware of any executive at a drug distributor who has had a single dollar in compensation docked as a result of their company’s role in fueling this nation’s opioid crisis,” said Ken Hall, general secretary and treasurer of the International Brotherhood of Teamsters, which invests in opioid companies through its pension funds.

Cardinal Health said last year it has a long-standing practice to exclude litigation charges from performance appraisals “because they often relate to events that may have occurred in prior or multiple periods” and “are inherently unpredictable in timing or amount.” Cardinal Health CEO Mike Kaufmann got a pay package of $14.2 million.

“We heard the voice of our shareholders at our annual meeting this past year and will be responsive to their concerns,” Erich Timmerman, a Cardinal Health spokesman, said in a statement.

AmerisourceBergen told investors earlier this year that it considered using “negative discretion” to adjust compensation but decided against it because of CEO Steven Collis’s strong performance. Collis made an estimated $14.3 million in cash and equity.

The drug distributor’s board “will continue to engage with shareholders to promote dialogue on this topic,” Lauren Esposito, a spokeswoman for AmerisourceBergen, said in a statement.

Johnson & Johnson has said its board actively monitors executive pay programs to make sure they align with company values. It has long been Johnson & Johnson’s practice to exclude “certain nonrecurring gains and expenses such as litigation-related items” from compensation measures, spokesman Jake Sargent said in a statement.

Alex Gorsky, CEO of Johnson & Johnson, made $29.6 million last year.

McKesson’s board also excluded its expected opioid settlement costs from its determination of whether executives met their performance goals, saying that legal settlement costs are unpredictable and not a good measure of a manager’s recent performance.

Instead, the board made a “discretionary reduction” to the pay of its CEO and other top executives, it said in its proxy statement. The board also reduced a portion of its planned cash payouts to Hammergren, Tyler’s predecessor, noting that he was McKesson’s CEO “at the time of the events underlying the claims in the litigation.”

Hammergren, who earned hundreds of millions of dollars during his tenure as CEO, will forfeit $780,000 due to the opioid settlement costs, the board said.

In an emailed statement, McKesson spokesman David Matthews said that “aligning pay with performance is the cornerstone of McKesson’s executive compensation program and is intended to help support the company’s long-term success.” McKesson shareholders will vote on executive pay packages during their annual meeting in July.

Matthews declined to make Tyler or anyone from McKesson’s board available for comment. Hammergren did not respond to a request seeking comment.

Many of the current heads of big drug companies were in positions of power at these firms throughout the deadliest years of the opioid crisis. Nearly a half-million Americans died of opioid overdoses between 1999 and 2019, with rapid increases in deaths involving heroin and synthetic opioids such as fentanyl over the past decade, according to the Centers for Disease Control and Prevention.

Tyler joined McKesson in 1997 and has led “nearly every major business within the company,” according to his bio on the firm’s website. Collis has been at AmerisourceBergen for 20 years and CEO for the past decade. Gorsky and Kaufmann have been at Johnson & Johnson and Cardinal Health, respectively, for the past three decades.

In 2017, McKesson paid $150 million to settle the Drug Enforcement Administration’s charges that it did not report suspicious drug orders to authorities for several years — at the time, the largest fine ever imposed by the DEA. The same year, former DEA officials told The Washington Post that the agency’s investigators had gathered enough evidence to bring charges against McKesson, but ultimately opted to strike a more lenient deal with the company.

At the time of the settlement, McKesson said it had instituted “significant changes” to its program designed to flag suspicious orders of narcotics. The company also has said that addressing the opioid problem requires the cooperation of everyone involved — doctors, pharmacists, distributors and manufacturers.



Source link

Load More Related Articles
Load More In Business
Comments are closed.

Check Also

Should you take advantage of employer’s offer to work from home? Some say it could be a career-limiting move

As vaccination rates rise and employers start to think about resuming regular working rout…