Bristol-Myers Squibb Co (NYSE:BMY, $BMY) is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceutical products across the world. It is one of the stocks in my portfolio. Their annual meeting is coming up on May 3, 2016. ProxyDemocracy.org had collected the votes of four fund families when I checked. Vote AGAINST pay, compensation committee – FOR my shareholder proposal to lower the threshold to call a special meeting. I voted with the Board’s recommendations 50% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Bristol-Myers Squibb: ISS Rating
From Yahoo! Finance: Bristol-Myers Squibb Company’s ISS Governance QuickScore as of Apr 1, 2016 is 9. The pillar scores are Audit: 10; Board: 6; Shareholder Rights: 5; Compensation: 10. Brought to us 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: Everywhere but especially Compensation and Audit.
Bristol-Myers Squibb: Compensation
Bristol-Myers Squibb’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Giovanni Caforio, M.D. at $15.6M. I’m using Yahoo! Finance to determine market cap ($117.9B) and Wikipedia’s rule of thumb regarding classification. Bristol-Myers Squibb is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay is higher than that amount. Shares outperformed the S&P 500 over the most recent one, two, five and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave Bristol-Myers Squibb an overall grade of ‘C.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 89% of companies in the home market. 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, essential for investors to assess the rigor of incentive programs.
- The CEO’s annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
- 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures American Express Company’s wealth creation in comparison to other widely held issuers. “Superior” is the rating given. On the actual compensation advisory vote, Egan-Jones concludes:
Our qualitative review of this Company’s compensation has identified one minor issue: the CEO’s salary at $1,290,323 exceeds the $1 million dollar deducibility limit imposed by section 162m for salaries and non-qualified incentive payments. Failure to abide by IRS 162m rules results in loss of deductibility for the compensation in question and possibly increased and unnecessary tax payments. While this issue is not sufficient to trigger a negative vote alone, it does impact the Company’s overall compensation score, we would recommend the board investigate and consider alternative means of compensation for the CEO and any other 162m covered NEOs who exceed this limit in the future…
We believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value. Therefore, we recommend a vote “FOR” this Proposal.
Given the issues above, including pay over median, I voted Against the pay package and the compensation committee: Togo D. West, Jr., Chair, Michael Grobstein, Vicki L. Sato, Ph.D., Gerald L. Storch.
Bristol-Myers Squibb: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.
Bristol-Myers Squibb: Board Proposals
Egan-Jones recommended in favor of all directors. As noted above, I voted against all members of the compensation committee.
I notice that Dr. Lamberto Andreotti doesn’t own any stock in Bristol-Myers Squibb, even though he has served on the board for 7 years. As I have mentioned previously on many occasions, I like directors representing me to have skin in the game. If they own stock, they are more likely to look out for my interests as a shareholder. See evidence at Bhagat, Sanjai and Carey, Dennis C. and Elson, Charles M., Director Ownership, Corporate Performance, and Management Turnover. I voted against him as well.
Bristol-Myers Squibb: Shareholder Proposals
Egan-Jones recommends against the proposal, agreeing that 25%, rather than 15%, is a reasonable threshold. or the shareholder proposal to transition to an independent director but recommended against the rest. 15% is $17.7B. a substantial amount by any measure.
Item #4 Shareholders May Call Special Meeting I’m the proponent, so of course I voted for it. This is a good governance measure designed to reduce entrenchment. Allowing special meetings is associated with higher share values. See classic study by Gompers, Paul A. and Ishii, Joy L. and Metrick, Andrew, Corporate Governance and Equity Prices. Vote For.
Bristol-Myers Squibb CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on and Canada Pension Plan Investment Board (CPPIB), Colorado PERA and Teacher Retirement System of Texas CPPIB. They voted in favor of all items, including my shareholder proposal.
Bristol-Myers Squibb: CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CPPIB COPERA TRS | CBIS | CALVERT | DOMINI | TRILLIUM |
|---|---|---|---|---|---|---|---|
| 1A | Elect Director Lamberto Andreotti | Against | For | For | For | Against | Against |
| 1B | Elect Director Peter J. Arduini | For | For | For | For | For | Against |
| 1C | Elect Director Giovanni Caforio | For | For | For | For | For | Against |
| 1D | Elect Director Laurie H. Glimcher | For | For | For | For | For | Against |
| 1E | Elect Director Michael Grobstein | Against | For | For | For | For | Against |
| 1F | Elect Director Alan J. Lacy | For | For | For | For | For | Against |
| 1G | Elect Director Thomas J. Lynch, Jr. | For | For | For | For | For | Against |
| 1H | Elect Director Dinesh C. Paliwal | For | For | For | For | For | Against |
| 1I | Elect Director Vicki L. Sato | Against | For | For | For | For | Against |
| 1J | Elect Director Gerald L. Storch | Against | For | For | For | Against | Against |
| 1K | Elect Director Togo D. West, Jr. | Against | For | For | For | For | Against |
| 2 | Ratify Named Executive Officers’ Compensation | Against | For | For | For | Against | Against |
| 3 | Ratify Deloitte & Touche LLP as Auditors | For | For | Against | Against | Against | Against |
| 4 | Shareholders May Call Special Meeting | For | For | For | For | For | For |
Bristol-Myers Squibb: Issues for Future Proposals
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.
- Proxy access ‘lite’ provisions whereby a shareholder or group of no more than 20 stockholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed the greater of two individuals or 20% of the board. Nominees who receive less than 25% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings.
Bristol-Myers Squibb: Mark Your Calendar
Shareholder proposals relating to our 2017 Annual Meeting of Shareholders 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 23, 2016. Such proposals must comply with SEC regulations under Rule 14a-8 regarding the inclusion of shareholder proposals in company sponsored proxy materials. Shareholders are encouraged to contact the Office of the Corporate Secretary prior to submitting a shareholder proposal or any time they have a concern. At the direction of the Board of Directors, the Office of the Corporate Secretary acts as corporate governance liaison to shareholders.
Warnings
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.
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