Pension Funds Oppose Mylan Board, Compensation Plan

Four pension funds are urging shareholders of pharmaceutical company Mylan to reject the re-election of six of the company’s board members, and to vote against a management proposal to ratify 2016 executive compensation.

The New York State Pension Funds, New York City Pension Funds, the California State Teachers’ Retirement System, and Dutch pension fund PGGM sent a letter to Mylan shareholders calling on them to vote against director nominees Wendy Cameron, Robert Cindrich, Robert Coury, Neil Dimick, Mark Parrish, and Randall Vanderveen. They also asked the shareholders to deny Chairman Coury $97.6 million in proposed compensation for 2016.

The shareholders will vote on the proposals at its annual meeting on June 22.

“We believe the time has come to hold Mylan’s board accountable for its costly record of compensation, risk, and compliance failures,” said the pension funds in the letter. “While the entire board bears some responsibility, we believe accountability and refreshment must begin with the six above-named directors.”

For more stories like this, sign up for the CIO Alert newsletter. 

Collectively, the pension funds own approximately 4.3 million shares of Mylan valued at $170 million based on the stock’s most recent closing price.

The pension funds said that Mylan’s board “reached new lows in corporate stewardship in 2016, when it agreed to make extraordinary and egregious payments in 2016 and over the next five years to chairman and former CEO Coury. “

Coury’s compensation totaled $97.6 million in 2016, but the funds said this understated his total pay. “Including vesting and payments triggered in part by inconsistent Board determinations, Mr. Coury received more than $160 million in 2016.”

Mylan said in a statement that Coury’s compensation “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.”

The funds said the level of compensation was particularly unseemly as it came amid public and regulatory accusations of price-hiking Mylan’s EpiPen, which was marked up by 400%. Mylan agreed to a $465 million settlement with the Department of Justice in 2016 for five years of overcharging for the EpiPen.

“Mylan has since suffered significant reputational and financial harm; been the subject of multiple federal and state investigations, as well as civil litigation,” said the letter. “This controversy also caused investors—including several of us—to urge the board to strengthen its oversight of Mylan’s drug-pricing strategy and risks, requests that have been largely ignored.”

The pension funds concluded that “Mylan’s management and board leadership structures are out of line with best practices and its self-designated compensation peer companies,” and that “Mylan’s Board must be refreshed to be strongly independent and to protect investor value.”

The letter was signed by New York City Comptroller Scott Stringer; New York State Comptroller Thomas DiNapoli,; Anne Sheehan, director of corporate governance for California State Teachers’ Retirement System; and Margriet Stavast-Groothuis, advisor, responsible investment for PGGM.

Tags: California Teachers’ Retirement System, Coury, EpiPen, Mylan, New York City Pension Funds, New York State Pension Funds, PGGM

UK telecommunications company BT said in its most recent annual report that it was “considering a number of options for funding the deficit” of its £50.1 billion ($64.3 billion) pension plan, which has grown to £7.55 billion.

“These options include considering whether there are alternative approaches to only making cash payments, including arrangements that would give the BTPS [BT Pension Scheme] a prior claim over certain BT assets,” said BT.

The company said the BTPS faces the same risks challenging other UK defined benefit plans, such as low investment returns, high inflation, longer life expectancy, and regulatory changes, which may mean the BTPS becomes more of a financial burden for BT.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“We have a large funding obligation to our defined benefit (DB) pension schemes,” said BT in its annual report. The largest of these, the BPTS, with approximately 300,000 participants, represents more than 97% of the group’s pension obligations.

The company didn’t elaborate further on the options for funding the deficit.

BT reported that the BTPS’ total assets grew to £50.1 billion from £43.1 billion in 2016. The report comes just ahead of the pension plan’s triennial valuation. The purpose of the valuation is to design a funding plan to ensure that the BTPS has sufficient funds available to meet future benefit payments. The last valuation was performed in June 2014, and the results of the next funding valuation will be made public no later than June 30 of this year. The evaluation took place in March and April 2017.

The deficit at the valuation date will influence the deficit payments the company agrees to make, the company said. Several factors affect the liabilities, including expected future investment returns at the valuation date.

“If there’s an increase in the pension deficit at the next valuation date, we may have to increase deficit payments into the scheme,” said BT. “Higher deficit payments could mean less money available to invest, pay out as dividends, or repay debt as it matures, which could, in turn, affect our share price and credit rating.”

However, BT said in its annual report that “asset returns have been positive over the year with strong returns from equities and government bonds.”

Based on the 2014 funding valuation agreement, the company reported that it expects to make contributions of approximately £850 million to the BTPS in 2017/2018, which is comprised of ordinary contributions of approximately £162 million and deficit contributions of £688 million. This will be reviewed as part of the upcoming funding valuation.

Tags: BT, cash, pension debt