Pharmaceutical Companies, Investor Coalition Develop Industry Standard-Setting
Principles for Recoupment Policies Covering Major Compliance Failures
DETROIT, April 4, 2013
DETROIT, April 4, 2013 /PRNewswire/ -- Amgen Inc. (NASDAQ: AMGN),
Bristol-Myers Squibb Company (NYSE: BMY), Eli Lilly and Company (NYSE: LLY),
Johnson & Johnson (NYSE: JNJ), Merck & Co., Inc. (NYSE: MRK) and Pfizer Inc.
(NYSE: PFE) today joined thirteen institutional investors in endorsing a set
of principles aimed at deterring violations of health care laws. The
principles, Principal Elements of a Leading Recoupment Policy, were jointly
developed by the companies and the investor coalition as a best practice
corporate governance strategy that seeks to strengthen board risk oversight
and preserve long-term shareholder value.
"Properly designed, compensation policies can be effective antidotes to
compliance violations by affirming accountability that has real consequences,"
said Meredith Miller, Chief Corporate Governance Officer, UAW Retiree Medical
The members of the working group, facilitated by Johnson & Johnson and the UAW
Retiree Medical Benefits Trust, believe that the principles will help deter
unethical and inappropriate behavior and that the collaborative process that
led to these principles can serve as a model to apply to other
corporate-shareholder engagements going forward.
Many top companies have clawback policies but these policies are only
triggered when there is a financial restatement and seek to recover
compensation that has already been paid. The agreed-upon recoupment
principles also contemplate the recoupment of compensation that has not yet
been awarded or vested. A 2012 Equilar study of Fortune 100 companies found
that while 85% of the companies surveyed had clawback policies, only 25% of
these policies contain an ethical misconduct trigger not associated with a
"We believe these principles strengthen the alignment between shareholders and
management by providing potent but balanced disincentives for bad behavior,"
said New York State Comptroller Thomas P. DiNapoli.
Among the key agreed-upon principles of a company's recoupment policy are:
oFull discretion of the board compensation committee to determine if a
material violation of company policy related to the sale, manufacture or
marketing of health care services, has caused significant financial harm
to the company and should therefore trigger consideration of a possible
recoupment of incentive compensation.
oApplication of the principles extending beyond the individuals responsible
for the compliance failures to potentially include supervisors who failed
to appropriately manage or monitor the risk.
oDecisions by the board compensation committee including whether to
"clawback" incentive-based compensation already paid or otherwise recoup
or reduce compensation that has not yet vested or has not yet been paid.
oPublic disclosure concerning decisions to recoup compensation in
compliance with SEC rules and, where appropriate, board compensation
committees may choose to provide additional information.
The development of these principles was a collaborative effort. Companies in
the working group are adapting the principles to suit their compensation
"These clawback principles give boards a mechanism to hold executives
accountable for misconduct and compliance violations, which is especially
important in highly regulated industries such as health care," New York City
Comptroller John C. Liu said. "Other companies should look to these principles
as a model for advancing the highest levels of ethics in the workplace."
Investor participants included the UAW Retiree Medical Benefits Trust, the
AFL-CIO Office of Investment, Amalgamated Bank Longview Funds, Connecticut
Retirement Plans & Trust Funds, F&C Asset Management UK, HERMES Fund Managers,
Illinois State Board of Investment, International Brotherhood of Teamsters,
Laborers International Union of North America, New York City Pension Funds,
New York State Common Retirement Fund, the United Steelworkers and Wespath
Investment Management. The working group was facilitated by Alan L. Beller and
Arthur H. Kohn, Partners, Clearly Gottlieb Steen & Hamilton LLP. Aaron Boyd,
Director of Research, Equilar, James Reda, Managing Director, James F. Reda &
Associates, and Lynn Shapiro Snyder, Senior Member, Epstein Becker Green,
served as subject matter experts.
SOURCE UAW Retiree Medical Benefits Trust
Contact: Patricia McCarthy, Public Relations/Spokesperson, UAW Retiree Medical
Benefits Trust, firstname.lastname@example.org, (313) 882-9200 or (313) 418-4155
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