Proxy Blog

Vertex Pharmaceuticals Incorporated 

May 13, 2019

The annual proxy for this pharmaceutical company had the following proposals: 

  1. Proforma proposals on directors, appointment of auditors, and “say-on-pay” advisory vote 
  2. Board proposals on stock & option plan and employee stock purchase plan 
  3. Shareholder proposals on drug pricing risks in executive compensation programs and lobbying disclosure 

Magni voted as follows: 

  1. For and against proforma proposals.
    -For directors  The board has a majority of independent directors and some have CEO/CFO experience with other companies. The compensation of directors is disclosed with a meaningful portion in equity where the equity has restrictions to align director incentives with long-term value creation.
    -For auditors  There appear to be no controversies with the financial statements of the company.
    -Against say-on-pay” – As with last year, Magni voted against this proposal. The company did improve by documenting the peer group, though the criteria are high level and subject to gerrymandering. The absence of a shareholder engagement program is an inhibitor in the company understanding what shareholders expect in disclosure about executive compensation. 
  2. For board proposals.
    -Stock and option plan – Stock and option incentive plans are good tools for aligning management of a company with shareholder interests. The amendments to the existing plan are relatively minor and the changes are consistent with good governance.
    -Employee stock purchase plan  As with stock and option incentive plans, employee stock purchase plans are good tools for aligning employees of a company with shareholder interests. This proposal was simply an amendment for a small increase in shares allocated to the program.
  3. For and against shareholder proposals.
    -Against drug pricing risks in executive compensation programs – The material provided by the shareholder came across as a political platform instead of one in the interest of shareholders. The rapid escalation of drug prices is a significant issue. The proposal had one specific instance where the company was alleged to have a problem. That instance was more about the effectiveness of the medication instead of the pricing. Barring a good reason, shareholders should let the board determine the specific components of executive compensation programs. Shareholders should focus on the executive compensation practices and disclosures that allow them to understand if the board is serving the shareholders’ interests or the top executives’ interests. Per above, the board should focus on improving compensation practices and governance.
    -For lobbying disclosure – Magni votes both for and against such proposals. If the company provides strong and clear disclosure, then Magni tends to vote against the proposal. If the proposal mainly focuses on disclosure of trade group or industry association efforts, then the proposal goes beyond disclosure of political activities and Magni tends to vote against the proposal. The company disclosures regarding lobbying activities are not strong. Despite the shareholder proposal containing some elements related to trade group and industry associations, Magni voted in favor of the proposal to help assure greater disclosure in the future.