McKesson Corp. shareholders rejected the company's compensation package for its executives, in a rebuke to the pharmaceutical wholesaler following a Teamsters-led campaign against McKesson's pay practices and its distribution of prescription opioids.
The nonbinding shareholder vote Wednesday comes amid a lackluster performance of McKesson's stock, which has fallen 15.2% over the past 12 months, and increased legal scrutiny of its oversight of pharmacy customers purchasing prescription opioids and other controlled substances.
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McKesson will "conduct a thorough review" of its compensation plan in light of the shareholder vote, and "consider implementing changes" that further align executive pay with the interests of shareholders, the company said in a statement announcing preliminary voting results from its annual meeting in Irving, Tex., on Wednesday.
The vote against McKesson's executive pay was supported by the International Brotherhood of Teamsters, a McKesson shareholder and labor union of 1.4 million workers, as well Institutional Shareholder Services Inc. and Glass, Lewis & Co., the two biggest U.S. proxy-advisory firms for institutional investors.
So-called say-on-pay votes are required under federal securities law, and are intended to address all elements of executive compensation described in companies' annual proxy statements.
The rejection of McKesson's executive pay practices includes $21.1 million in total compensation, including stock options that haven't vested yet, received by Chief Executive and Chairman John H. Hammergen in the company's 2017 fiscal year, ending March 31. Since 2007, Mr. Hammergren's pay totaled about $395 million, or an average of $35.9 million annually, according to data from S&P Global Market Intelligence.
The Teamsters praised the advisory vote against executive compensation as a victory in its campaign against McKesson's pay policies, which it argued insulated Mr. Hammergren from the "legal, political and reputational risks surrounding the company's role in the opioid crisis."
In a letter to McKesson investors earlier this month, the Teamsters pointed to McKesson's $150 million settlement with the Drug Enforcement Administration in January. When McKesson set aside $150 million in 2015 as part of the DEA investigation, the money was excluded from its adjusted earnings per share, a key metric the company uses to evaluate executive performance and compensation, the Teamsters letter said.
A McKesson spokeswoman said excluding litigation reserves from adjusted earnings is common among most public companies and helps investors better compare financial results among companies.
The settlement resolved allegations that McKesson failed to identify and report suspicious orders of controlled substances by small pharmacies. McKesson distributed "an increasing amount of oxycodone and hydrocodone pills, frequently misused products that are part of the current opioid epidemic," in the period from 2008 to 2013, the Justice Department said in a January statement announcing the settlement.
McKesson said on Wednesday it takes its responsibility as a distributor of opioids seriously, including by investing millions of dollars to "monitor suspicious ordering patterns" and block shipments to pharmacies when necessary. "While McKesson doesn't manufacture, prescribe, or dispense opioids, the company is doing everything it can to help address this crisis in close partnership" with the DEA, the company said.
In a separate matter, McKesson said shareholders rejected a Teamsters proposal to require the separation of the company's chairman and chief executive roles, and that its chairman be an independent director who hadn't previously been a McKesson executive.
ISS and Glass Lewis supported the failed proposal, with ISS citing Mr. Hammergren's "sizable" pay "during a period of sustained shareholder losses," and McKesson legal settlements related to its distribution of controlled substances as proof that "shareholders would benefit from the heightened independent oversight" of an independent chairman.
McKesson, which had recommended that investors vote against the proposal, said the vote indicated shareholders' "support of the company's current governance structure."
Nonetheless, McKesson said its board had decided "to split the role of chairman and CEO in the future," after a successor to Mr. Hammergen is appointed. Mr. Hammergren, 58 years old, has no plans to leave the company, a McKesson spokeswoman said.
"We take the feedback seriously and will carefully consider the input received -- making changes where necessary -- so that we can continue to best serve our customers and deliver long-term value for our shareholders," Mr. Hammergren said in a statement on Wednesday.
McKesson shares were down about 0.8% in after-hours trading.
Joann S. Lublin contributed to this article.
Write to Joseph Walker at email@example.com
(END) Dow Jones Newswires
July 26, 2017 17:26 ET (21:26 GMT)