Despite resistance from top pharma companies, shareholders are set to vote this spring on resolutions seeking more information about potential links between executive pay and rising drug prices.
Several drug industry players resisted the proxy vote, but the SEC ruled in favor of the Interfaith Center on Corporate Responsibility, which filed the resolutions last year.
AbbVie, Amgen, Biogen, Bristol-Myers Squibb and Eli Lilly shareholders now have the right to vote on them, ICCR said. The group has been trying to learn more about pharma's pricing for years, and in December filed resolutions outlining concerns that executive pay at the companies incentivizes price hikes.
The drugmakers opposed the resolutions on the grounds that they already disclose executive compensation details and that the info ICCR requested could be misleading, among other arguments, according to the faith-based group.
Already this year, AbbVie reported that its CEO Richard Gonzalez received a $22.6 million pay package for 2017, with $600,000 coming in the form of personal air travel. Eli Lilly's chief David Ricks racked up $15.8 million in salary, incentive pay and equity awards for his first year on the job. Bristol-Myers CEO Giovanni Caforio's compensation added up to $18.7 million. Amgen and Biogen haven't filed their annual proxies detailing exec pay.
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ICCR argues that if pharma exec pay packages are based on short-term metrics such as earnings per share or revenue increases, company leadership might lean on price hikes for growth. Over time, the strategy carries regulatory and reputational risks, according to the group.
Donna Meyer, director of shareholder advocacy at Mercy Investment Services, on Monday said transparency on the issue could lead to changes in compensation structures and "actual changes in the way they price drugs."
"All of us are driven by the way we are compensated because that motivates us," she said. "If the motivation is to increase prices and get big bonuses, that's saying that's the way to go. That's the easy way out."
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Alternatively, exec pay packages should focus on bringing new drugs to market and expanding the market for current drugs, she said. Before the votes, ICCR is working to educate shareholders on the issue, Meyer added.
Representatives for several of the drugmakers didn't immediately respond to requests for comment. Biogen declined to comment. A Lilly spokesperson said the SEC decision is months old and included in the company's proxy.
"Given that information relating to executive compensation programs, plans, and practices is already disclosed as part of the proxy statement, we believe an annual report is unnecessary," the document says.
According to Lilly's proxy, the company has "strong shareholder support" for its executive compensation, with more than 97% of investors voting in favor of the packages last year. The plans are "designed to align with shareholder interests and link pay to performance through a blend of short- and long-term performance measures," the document says.
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ICCR has been engaged with pharma on its pricing for years, and last year ran into industry resistance when it asked for details about price hikes at 18 drugmakers and the reasoning behind them. The companies responded that drug pricing is complex and that consumers wouldn’t understand it. Plus, disclosing the information would put them at a competitive disadvantage, the companies argued.
Aside from drug prices, ICCR is engaged in shareholder resolutions over gun safety, political contributions, climate change, human rights and more, according to the group's website.
The votes this spring come as pharma faces a years-long push from regulators and consumers for more drug price transparency. In response to criticism over the industry's pricing, Eli Lilly, Johnson & Johnson and Merck have released reports detailing their list price hikes and level of rebating to drug middlemen. A common industry defense against drug pricing criticism is that middlemen are taking a larger share of spending than they have in the past.
As lawmakers in Washington, D.C., haven't advanced any major drug pricing proposals, many states have taken the issue into their own hands, creating an additional risk for the industry.