The UAW Retiree Medical Benefits Trust in Detroit, an autoworkers union pension plan sponsor, is calling for generic drug company Mylan to adopt a pay policy that would force senior executives to give back incentive pay if they are found to be guilty of misconduct.
The pension made the request in a shareholder proposal that will be discussed at Mylan’s annual general meeting of shareholders June 21. The proposal calls for the company to amend its clawback policy so it can recoup incentive compensation from a senior executive if there has been misconduct that causes “significant financial or reputational harm to Mylan.”
This would include not only senior executives who commit misconduct, but those who fail to manage or monitor conduct.
“In recent years, Mylan has faced regulatory actions related to misconduct in the marketing and sales of prescription drugs,” said the UAW pension in its supporting statement.
The pension noted that Mylan is facing multiple lawsuits for the alleged role it has played in America’s ongoing opioid crisis, and in 2016, the company settled with the US Department of Justice for $465 million related to overcharging Medicaid for its EpiPen product. Additionally, Mylan has been named as a defendant in a multi-state lawsuit alleging that generic drug manufacturers colluded on drug prices.
“As long-term shareholders, we believe that compensation policies should promote sustainable value creation,” said the pension. “Recoupment policies with business-related misconduct triggers are a powerful mechanism for holding senior leadership accountable.”
Mylan currently has a clawback policy allowing recoupment of bonus and equity compensation gains resulting from misconduct that causes a financial restatement. However, the pension argues that the policy doesn’t provide for incentive compensation recovery in the event of other kinds of significant misconduct from a member of senior management who failed to properly monitor or manage risks related to the misconduct.
“In our view, significant damage can be caused by misconduct that does not necessitate a financial restatement,” said the pension, “and it may be appropriate to hold accountable a senior executive who did not commit misconduct but who failed in his or her management or monitoring responsibility.”
But Mylan won’t allow the proposal to be voted on at its general meeting. The company, which is registered in the Netherlands, said that allowing a vote on the proposal would go against Dutch law because the pension did not hold at least 3% of Mylan’s issued share capital as of April 22. However, the company’s board of directors said it is encouraging shareholders to attend the general meeting to discuss the proposal so that it can consider their views and perspectives.
“Mylan currently has a robust clawback policy in place that is applicable to all executives, and we remain fully committed to maintaining our policy in compliance with applicable rules and regulations,” said Mylan in an SEC filing, adding that it “believes that the shareholder proposal is unnecessary at this time.”
The UAW is the beneficial owner of 82,469 of the company’s ordinary shares that it has continuously owned for at least one year, which as of the end of trading May 31 was worth nearly $1.4 million.