McKesson Shareholders Reject Executive Compensation Packages
July 26 2017 - 5:41PM
Dow Jones News
By Joseph Walker
McKesson Corp. shareholders rejected the company's compensation
package for its executives, in a rebuke to the pharmaceutical
wholesaler following a Teamsters-led campaign against McKesson's
pay practices and its distribution of prescription opioids.
The nonbinding shareholder vote Wednesday comes amid a
lackluster performance of McKesson's stock, which has fallen 15.2%
over the past 12 months, and increased legal scrutiny of its
oversight of pharmacy customers purchasing prescription opioids and
other controlled substances.
McKesson will "conduct a thorough review" of its compensation
plan in light of the shareholder vote, and "consider implementing
changes" that further align executive pay with the interests of
shareholders, the company said in a statement announcing
preliminary voting results from its annual meeting in Irving, Tex.,
on Wednesday.
The vote against McKesson's executive pay was supported by the
International Brotherhood of Teamsters, a McKesson shareholder and
labor union of 1.4 million workers, as well Institutional
Shareholder Services Inc. and Glass, Lewis & Co., the two
biggest U.S. proxy-advisory firms for institutional investors.
So-called say-on-pay votes are required under federal securities
law, and are intended to address all elements of executive
compensation described in companies' annual proxy statements.
The rejection of McKesson's executive pay practices includes
$21.1 million in total compensation, including stock options that
haven't vested yet, received by Chief Executive and Chairman John
H. Hammergen in the company's 2017 fiscal year, ending March 31.
Since 2007, Mr. Hammergren's pay totaled about $395 million, or an
average of $35.9 million annually, according to data from S&P
Global Market Intelligence.
The Teamsters praised the advisory vote against executive
compensation as a victory in its campaign against McKesson's pay
policies, which it argued insulated Mr. Hammergren from the "legal,
political and reputational risks surrounding the company's role in
the opioid crisis."
In a letter to McKesson investors earlier this month, the
Teamsters pointed to McKesson's $150 million settlement with the
Drug Enforcement Administration in January. When McKesson set aside
$150 million in 2015 as part of the DEA investigation, the money
was excluded from its adjusted earnings per share, a key metric the
company uses to evaluate executive performance and compensation,
the Teamsters letter said.
A McKesson spokeswoman said excluding litigation reserves from
adjusted earnings is common among most public companies and helps
investors better compare financial results among companies.
The settlement resolved allegations that McKesson failed to
identify and report suspicious orders of controlled substances by
small pharmacies. McKesson distributed "an increasing amount of
oxycodone and hydrocodone pills, frequently misused products that
are part of the current opioid epidemic," in the period from 2008
to 2013, the Justice Department said in a January statement
announcing the settlement.
McKesson said on Wednesday it takes its responsibility as a
distributor of opioids seriously, including by investing millions
of dollars to "monitor suspicious ordering patterns" and block
shipments to pharmacies when necessary. "While McKesson doesn't
manufacture, prescribe, or dispense opioids, the company is doing
everything it can to help address this crisis in close partnership"
with the DEA, the company said.
In a separate matter, McKesson said shareholders rejected a
Teamsters proposal to require the separation of the company's
chairman and chief executive roles, and that its chairman be an
independent director who hadn't previously been a McKesson
executive.
ISS and Glass Lewis supported the failed proposal, with ISS
citing Mr. Hammergren's "sizable" pay "during a period of sustained
shareholder losses," and McKesson legal settlements related to its
distribution of controlled substances as proof that "shareholders
would benefit from the heightened independent oversight" of an
independent chairman.
McKesson, which had recommended that investors vote against the
proposal, said the vote indicated shareholders' "support of the
company's current governance structure."
Nonetheless, McKesson said its board had decided "to split the
role of chairman and CEO in the future," after a successor to Mr.
Hammergen is appointed. Mr. Hammergren, 58 years old, has no plans
to leave the company, a McKesson spokeswoman said.
"We take the feedback seriously and will carefully consider the
input received -- making changes where necessary -- so that we can
continue to best serve our customers and deliver long-term value
for our shareholders," Mr. Hammergren said in a statement on
Wednesday.
McKesson shares were down about 0.8% in after-hours trading.
Joann S. Lublin contributed to this article.
Write to Joseph Walker at joseph.walker@wsj.com
(END) Dow Jones Newswires
July 26, 2017 17:26 ET (21:26 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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