Senior Executive Incentives - Integrate Drug Pricing Risk
2019 – Bristol-Myers Squibb Company
RESOLVED, that shareholders of Bristol-Myers Squibb Company (“BMS”) urge the Compensation and Management Development Committee (the “Committee”) to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into BMS’s incentive compensation policies, plans and programs (together, “arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is taken into account when setting financial targets for incentive compensation arrangements.
Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable long-term value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management.
A key risk facing drug companies is the increased criticism from the public and actions that legislators and regulators are taking regarding pharmaceutical prices. A March 2018 Kaiser Family Foundation poll found that 52% of respondents ranked lowering drug prices as a “top priority” for the President and Congress. The White House released a “Blueprint” for lowering drug prices in May 2018. The NY Times reported that as of August 2018, twenty-four states have passed 37 bills this year to curb rising prescription drug costs. <https://www.nytimes.com/2018/08/18/us/politics/states-drug-costs.html>
We are concerned that the incentive compensation arrangements applicable to BMS’s senior executives may not encourage them to take actions that result in lower short-term financial performance even when those actions may be in BMS’s best long-term financial interests. BMS uses revenue and non-GAAP earnings per share, along with a pipeline goal and individual performance factors, as metrics for the annual bonus, and revenue and non-GAAP operating margin as metrics for performance share unit awards. (2018 Proxy Statement, at 41-43, 46)
A May 2018 Credit Suisse analyst report stated that “US drug price rises contributed 80% of industry EPS growth in 2017”. The report identified BMS as having the “greatest exposure to specialty drug pressure” of major pharmaceutical firms. (“Global Pharmaceuticals: Connection Series”, May 25, 2018, at 9) In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when price hikes drive large senior executive compensation payouts. For example, coverage of the skyrocketing cost of Mylan’s EpiPen noted that a 600% rise in Mylan’s CEO’s total compensation accompanied the 400% EpiPen price increase. (See, e.g., https://www.nbcnews.com/business/consumer/mylan-execs-gave-themselves-raises-they-hiked-epipen-prices-n636591; https://www.wsj.com/articles/epipen-maker-dispenses-outsize-pay-1473786288; https://www.marketwatch.com/story/mylan-top-executive-pay-was-second-highest-in-industry-just-as-company-raised-epipen-prices-2016-09-13)
The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal.