UAW Retiree Medical Benefits Trust, Ann Arbor, led a group of 13 institutional investors to develop, with six pharmaceutical companies, a set of principles on the recoupment of executive incentive compensation in the event of corporate compliance or other violations, according to a statement Thursday from the investor coalition.
The members of the working group of investors and companies, led by the $52.4 billion UAW trust and Johnson & Johnson, believe the principles “will help deter unethical and inappropriate behavior” at corporations, the statement said.
As a result of the endorsement, shareholders proposals filed by the New York State Common Retirement Fund, Albany, at Amgen and Bristol-Myers Squibb, and the $127.5 billion New York City pension funds at Johnson & Johnson and Merck, were withdrawn. Both funds are members of the coalition.
Other investors include the $26.1 billion Connecticut Retirement Plans & Trust Funds, $12.5 billion Illinois State Board of Investment and Wespath Investment Management, which oversees assets of the $18 billion General Board of Pensions and Health Benefits of the United Methodist Church.
Key principles include the discretion of the board compensation committee whether to claw back incentive-based compensation already paid or otherwise recoup or reduce compensation that has not yet vested or has not yet been paid.
Other principles include the compensation committee having full discretion “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,” the statement said.
In addition, the principles “extend beyond the individuals responsible for the compliance failures to potentially include supervisors who failed to appropriately manage or monitor the risk.”
The principles include public disclosure concerning decisions to recoup compensation in compliance with Securities and Exchange Commission rules.
“Properly designed, compensation policies can be effective antidotes to compliance violations by affirming accountability that has real consequences,” Meredith Miller, chief corporate governance officer for the UAW Retiree Medical Benefits Trust, said in the statement.
Thomas P. DiNapoli, New York state comptroller and sole trustee of the $152.9 billion New York State Common Retirement Fund, said in the statement, “We believe these principles strengthen the alignment between shareholders and management by providing potent but balanced disincentives for bad behavior.”
Ms. Miller in an interview said, “This type of collaborative working is unprecedented in corporate governance and the recoupment principles (set) a new standard” for health-care and other corporations.
Pfizer's similar policies, already in place, served as a template for the working group and the principles adopted by the compensation committees and boards of the other companies, Ms. Miller said.
Other members of the investor group are the AFL-CIO Office of Investment, Amalgamated Bank Longview Funds, F&C Asset Management, Hermes Fund Managers, International Brotherhood of Teamsters, Laborers International Union of North America and the United Steelworkers.