Bristol-Myers Squibb Co (BMY), which is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceutical products on a global basis, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/5/2015. ProxyDemocracy.org had the votes of four funds when I checked and voted on 4/30/2015. I voted with management 46% of the time and assigned Bristol-Myers Squibb a proxy score of 46.
Bristol-Myers Squibb’s ISS Rating
From Yahoo! Finance: Bristol-Myers Squibb Company’s ISS Governance QuickScore as of Apr 1, 2015 is 5. The pillar scores are Audit: 10; Board: 7; Shareholder Rights: 5; Compensation: 4. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus…. Audits and Board.
Bristol-Myers Squibb’s Compensation
Bristol-Myers Squibb’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Lamberto Andreotti at about $27M in 2014. I’m using Yahoo! Finance to determine market cap ($110B) and Wikipedia’s rule of thumb regarding classification.
Bristol-Myers Squibb is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Bristol-Myers Squibb’s pay was substantially more than that, even factoring for inflation. Bristol-Myers Squibb shares outperformed the S&P 500 over the most recent one, two, five and ten year periods.
The GMIAnalyst report I reviewed gave Bristol-Myers Squibb an overall grade of ‘D.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
- The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
- The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
Pay of $27M, even for excellent performance, combined with the above issues, led me to vote against the pay package.
Bristol-Myers Squibb Board of Directors and Board Proposals
Generally, when I vote against the pay package I also vote against the compensation committee, since they recommend the pay package to the full board. Therefore, I voted against: Togo D. West, Jr., Chair, Lewis B. Campbell, Michael Grobstein, Vicki L. Sato, Ph.D. and Gerald L. Storch.
I voted against the exclusive forum proposal. Bristol-Myers Squibb has not made a compelling argument for restricting shareholders’ litigation rights. Generally, I vote against proposals that take rights away from shareholders. I voted in favor of removing the supermajority requirement, giving shareholders more power. I believe this vote is a direct result of Kenneth Steiner’s 2014 proposal to move to a simple majority vote for all actions, which received 80% of the vote.
Bristol-Myers Squibb Accounting
I voted to not ratify Bristol-Myers Squibb’s auditor, Deloitte & Touche LLP, since more than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Bristol-Myers Squibb
I voted in favor of the proposal submitted by International Brotherhood of Electrical Workers’ Pension Benefit Fund to provide a right for shareholders to act by written consent. This is an important right to have in case of emergency.
CorpGov Recommendations for Bristol-Myers Squibb – Votes Against Board Position in Bold
|1.1C||Lewis B. Campbell||Against||For|
|1.1D||Laurie H. Glimcher||For||For|
|1.1F||Alan J. Lacy||For||For|
|1.1G||Thomas J. Lynch, Jr.||For||For|
|1.1H||Dinesh C. Paliwal||For||For|
|1.1I||Vicki L. Sato||Against||For|
|1.1J||Gerald L. Storch||Against||Against||For|
|1.1K||Togo D. West, Jr.||Against||For|
|2||Ratify Executive Pay||Against||Against|
|3||Ratify Auditor Deloitte & Touche LLP||Against||Against|
|4||Adopt Exclusive Forum for Certain Disputes||Against||Against|
|5||Remove Supermajority Vote Applicable to Preferred Stock||For||For|
|6||Right to Act by Written Consent||For||For|
Corporate Governance Issues at Bristol-Myers Squibb
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
Bristol-Myers Squibb Proxy Proposal Deadline for Next Year
eBay is yet another company that attempts to put up artificial barriers to discourage filing paperless proxy proposals. Mark your calendar to submit future proposals:
Stockholder proposals relating to our 2016 Annual Meeting of Stockholders must be received by us at our principal executive offices, Bristol-Myers Squibb Company, 345 Park Avenue, New York, New York 10154, attention: Corporate Secretary, no later than November 25, 2015. Such proposals must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company sponsored proxy materials. Stockholders are encouraged to contact the Office of the Corporate Secretary prior to submitting a stockholder proposal or any time they have a concern.
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.
Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven. Additional findings by Mark Van Clieaf of Organizational Capital Partners, as reported in The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design:
- Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.
- Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.
- Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.
- More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.
- Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.