Mylan

Annual Meeting June 22

The company infamous for its inflated EpiPen has been in the news a lot lately. The astonishing pay package of Chairman Robert Coury — $97,600,615 reported for 2016 — has received widespread coverage from Bloomberg, Business Insider, CNN,  USAToday and dozens of other publications.

Given the information included in the above articles, I thought I’d focus on the original source documents filed at the SEC and the back and forth between the company and some of its reasonably angry shareholders. Since Mylan filed its proxy on May 23, there have been eight additional filings. Here is a breakdown of those filings with links and highlights:

On May 30:  a group of institutional shareholders filed a non-exempt solicitation urging shareholders to vote against six directors as well as Coury’s pay package that the funds estimate as being worth $160 million.  “Despite persistent investor concerns with Mylan’s pay practices, Mr. Coury – who stepped down as Mylan’s CEO as of January 1, 2012 – received a third new and excessive compensation agreement in mid-2016, when the Board changed his title from ‘executive’ to ‘non-executive’ Chairman for at least the next five years.”

These investors — New York City Comptroller Scott M. Stringer, on behalf of the New York City Pension Funds; New York State Comptroller Thomas P. DiNapoli, the California State Teachers’ Retirement System, and PGGM — hold 4.3 million shares valued at $170 million. (In later correspondence Mylan directors refer to them as, “this small opposition group.”) The letter to shareholders notes, “We believe the time has come to hold Mylan’s board accountable for its costly record of compensation, risk and compliance failures.”

Among other things, the investors decry Coury’s compensation given that he was executive chair.  The New York City Pension Funds have been attempting reform for over five year. As noted:  “this Board has given Mr. Coury THREE post-CEO compensation agreements to keep him around – and this despite strong investor support (35% to 42% of votes cast) for the New York City Pension Funds’ shareowner proposal requesting an independent chair at Mylan’s 2012, 2013 and 2014 annual meetings.”

In addition to critiquing Coury’s package the funds raised the specter that Coury’s opposition to a potential acquisition by Teva Pharmaceutical Industries Ltd. May have been motivated by self-interest. “By year-end 2016, when Mylan’s Chairman, CEO and President each had again earned extravagant payouts, Mylan’s share price had dropped further to $38.15.  All of the mudslinging back-and-forth between Mylan and Teva10 only served to reinforce our concern that Chairman Coury would rather keep his pay and power at Mylan’s helm than likely lose those benefits to Teva cost- and position-cutting”

On May 31 the New Your City comptroller’s office filed a press release that included quotes from investors explaining why they joined the campaign:

“This entrenched and unaccountable board is long overdue for an overhaul,” said NY State Comptroller Thomas P. DiNapoli. “Mylan’s bloated pay packages add insult to the injury investors have suffered as a result of its poor governance.”

”Problematic pay and poor governance practices have plagued Mylan for a number of years.  The EpiPen price spike was particularly appalling because California state law requires schools to have EpiPens or like products on site. As the fiduciary of the Teachers’ Retirement Fund, it is our responsibility to hold the Mylan Board accountable for its actions and potential resultant financial and reputational risk damage. Voting against the say-on-pay proposal sends a strong message to the Mylan Board that it has failed in its responsibility and duty to shareholders by continuing the misalignment of executives’ pay with the value received by shareholders,” said CalSTRS Director of Corporate Governance Anne Sheehan.

On June 2, the company filed a colorful proxy supplement (with tiny fonts in its discussion of non-GAAP Financial Measures). The presentation goes through, at some level of detail, its target setting process, pay for performance design, and the fact that, “the board continues to refine our compensation approach.”

As one example of such refinements the company noted that it had “removed automatic accelerated vesting of stock option, RSU, and PRSU awards for eligible executives upon an individual satisfying retirement-eligibility criteria (55 years of age with 10+ years of service).”  Frankly, that it had such a feature, particularly on performance shares, is extraordinary. In addition, it appears that the change may be true only on going forward basis.  The company notes that, “Ms. Bresch and Mr. Malik have voluntarily waived their right to this provision for previously granted RSUs and PRSU.” I did not see information on how many executives may have been grandfathered in.

On June 6, in an unusual move, the company publicly filed a copy of a letter it sent to Institutional Shareholder Services (ISS) challenging the proxy advisory firm’s decision to not give the company pre-review rights on its report and recommendations.  In it board members explained that, “When faced with the prospect of Mr. Coury’s retirement last year, the Board, recognizing the immense value that Mr. Coury has brought to the company, its shareholders and other stakeholders, believed it was critical to retain his leadership and experience in this new role – a role that is uniquely suited to Mr. Coury’s talents and past experiences.”

On June 7, the company filed ISS’s response which explained its policy. .

On June 12 the company filed another letter it wrote to shareholders. In it they attempted to justify Coury’s compensation by noting that, “almost all of it was granted and earned over his 15-year tenure as CEO and then Executive Chairman, or directly relates to his retirement as an executive in 2016 and transition to non-executive Chairman.”  They add that, “his new compensation structure is even further aligned with the company’s stock performance while providing shareholders with the benefit of his continued leadership and guidance in setting Mylan’s strategic direction over the next five years. Mr. Coury’s restricted stock units will incentivize him to perform over the next five years and are unrelated to retirement payments otherwise due to him as a result of the termination of his employment.”

Also on June 12: , The pension funds filed with the SEC a press release,  noting that proxy fund advisors ISS and Glass Lewis have each recommended against the pay proposal as well as against some directors. The filing quotes ISS as noting that, “Mylan and its shareholders have suffered significant destruction in shareholder value as a result of the EpiPen pricing and classification controversies which emerged as public issues in 2016…. The company has also suffered long-term reputational damage.” Glass Lewis wrote, “we find the compensation arrangements made with Mr. Coury pursuant to his transition to be egregious.”