Steven Collis led one of the nation’s largest drug distributors through the deadliest years of the opioid epidemic, when pain pills poured through its warehouses and into the hands of addicts.
But while Collis’ company, AmerisourceBergen, prepares to pay a $6.6 billion legal settlement to compensate communities ravaged by prescription drug abuse, the 59-year-old chief executive is set to receive a financial windfall.
In its Jan. 28 solicitation to investors, AmerisourceBergen's board of directors recommended giving Collis a 2020 pay package worth $14.3 million, 24% more than he made the previous year. The board said he achieved "strong financial results" and earned a "stretch bonus" because the company surpassed every performance metric it tied to executive pay.
The substantial payout was possible only because the Chesterbrook-based drug distributor relied on a controversial accounting method: excluding legal settlement costs from its year-end CEO evaluation. By removing the settlement, AmerisourceBergen was able to turn its $3.4 billion loss from last year — the biggest annual loss in the company’s 20-year history — into a $1.6 billion “adjusted” profit.
As a result, Collis qualified for at least $10.2 million in cash and equity that he may not have received if the opioid settlement had been included, according to an analysis of regulatory filings by Michael Pryce-Jones, a corporate governance analyst for the International Brotherhood of Teamsters. The labor union invests in AmerisourceBergen through its pension fund.
Similarly, when rival drug distributor Cardinal Health evaluated the performance of chief executive Mike Kaufmann last fall, its adjusted its earnings removed the impact of an expected $6.6 billion opioid settlement. As a result, Kaufmann was paid at least $1.5 million more than he probably would have made had the settlement been included, Pryce-Jones estimated, noting that not enough data are publicly available to verify exactly how much pay the executives would have received.
The pay packages are raising concerns with governance experts who say AmerisourceBergen and Cardinal Health need to explain why they are not holding executives accountable for losses that occurred on their watch. ISS and Glass Lewis, two top shareholder advisories, took the rare step of recommending that investors reject Collis’ pay package when it comes to a vote on March 11.
In a statement, AmerisourceBergen spokeswoman Lauren Esposito said the company's annual incentive awards are "designed to encourage our management team to make decisions, including those related to the ongoing opioid litigation, that promote long-term value creation without being influenced by the implications those decisions could have on their personal compensation."
After being contacted by the Washington Post, AmerisourceBergen filed a three-page letter to investors. In it, the board said it considered using “negative discretion” to “adjust executive compensation payouts” but decided to award Collis his current compensation package because he has helped grow shareholder returns faster than peer companies and shown resilience in managing the business through the coronavirus pandemic.
"Including the impact of the legal expense accrual would not be in the best interests of the Company's stockholders," the board said in its letter.
Cardinal Health spokesman Erich Timmerman said in an emailed statement that the company has a long-standing practice "to exclude litigation charges like this" from its adjusted results "because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing or amount."
Both companies declined to make their chief executives available for interviews.
While parents have lost their children to drug overdoses and entire communities have been hobbled by addiction, drug industry titans are expanding their wealth. In August, a few weeks before AmerisourceBergen reached its historic settlement with plaintiffs, property records show that Collis paid $5.9 million for a beach house in New Jersey.
He has earned more than $100 million in his decade as chief executive.
"This epidemic started with money and continues to be about money," said Emily Walden, whose son T.J. died of an opiate overdose in 2012. She chairs the nonprofit Fed Up! Coalition. "Myself and hundreds of thousands of people have lost our loved ones due to greed. I never thought there were people who only care about profits."
Last month, the Post reported that AmerisourceBergen, Cardinal Health, and two other drug giants planned to deduct some of their legal settlement costs from their taxes and recoup about $1 billion apiece. Cardinal Health said then that its deductions were permissible under federal law, and the three other companies did not comment.
Steven Balsam, a professor of accounting at Temple University, said it's increasingly common for large public companies to assess managers using adjusted accounting metrics, which often exclude legal settlements and other irregular costs they say do not accurately reflect management's day-to-day performance. One study found that as many as 97% of companies in the S&P 500 stocks index used nonstandard accounting metrics in 2017, up from 59% in 1996.
Activist shareholders have pushed back against this trend, saying accounting adjustments give corporations too much discretion to manipulate the key performance measures on which they are judged. Some shareholders of AmerisourceBergen and Cardinal Health say investors are unfairly shouldering the burden of the huge legal settlements while executives have paid nothing.
"They can't just shift all the cost to investors," said Donna Meyer, director of shareholder advocacy at Mercy Investment Services.
Meyer, part of an investor group called Investors for Opioid and Pharmaceutical Accountability, helped rally opposition to Cardinal's pay package in November. Kaufmann's compensation was approved, but the portion of shareholders opposing his compensation jumped to 39%, up from 7% the previous year, spurring Cardinal's managers to have talks with shareholders, Meyer said.
In his statement, Cardinal's Timmermann said: "We heard the voice of our shareholders at our annual meeting this past year and will be responsive to their concerns."
In a letter to investors last month, the treasurers of Connecticut and Rhode Island said AmerisourceBergen's top executives should "share responsibility for the billions in costs the company has incurred as a result of its opioid distribution practices, not to mention the societal damage associated with the company's business practices." The states invest in the drug distributor through their public pension funds.
AmerisourceBergen's Esposito pointed out that 88% of shareholders voted to reject a 2019 proposal asking the board to prohibit adjusted accounting metrics when determining executive compensation. "Our Compensation & Succession Planning Committee believes that our investors support our consistent approach to excluding litigation-related expenses," she said in the statement.
Collis took the reins of AmerisourceBergen in 2011, as the opioid epidemic was mounting. From 2012 to 2014, the number of opioid pills shipped annually by the company nearly doubled, to 2.7 billion, according to a Drug Enforcement Administration database. The increase was partly the result of a partnership between the drug distributor and Walgreens.
The number of deaths involving opioids more than doubled from 2010 to 2019, according to data from the Centers for Disease Control and Prevention.
Collis has acknowledged the human cost of the opioid epidemic and pledged to increase efforts to stop shipments to illegal dispensaries, or pill mills.
The chief executive has also repeatedly denied that AmerisourceBergen contributed to the problem. Speaking to the Philadelphia Chamber of Commerce in 2017, he said responsibility for determining which customers might be misusing drugs lies mostly with doctors and pharmacists, not the distributors, The Inquirer reported.
“We try to ship what our customers need,” Collis told the crowd. “We don’t know who our customer is.”
In her statement, Esposito said the number of pills shipped by AmerisourceBergen represents a small piece of the total market for opioids and fell below the annual quotas of allowable drugs set by the Drug Enforcement Administration. She said opioid products constitute less than 2% of the company's sales.
"We don't manufacture these drugs, nor do we provide them directly to patients or take any action to drive their demand," she said.
In dozens of lawsuits brought during Collis’ tenure, states, tribes, and local governments have said AmerisourceBergen is culpable for its role in flooding the market with pills. Drawing on depositions of industry executives and subpoenas of internal company emails, plaintiffs have said AmerisourceBergen executives were aware that their products were being diverted to illicit uses and did little to stop it.
AmerisourceBergen agreed to settle some of these lawsuits last year while disavowing any wrongdoing or legal responsibility.
In 2011, AmerisourceBergen employees tasked with preventing the diversion of opioids exchanged emails with the lyrics to a parody version of the Beverly Hillbillies theme song, according to a copy of the emails made public last year as part of a federal case in Cleveland. Employees joked about the song, which described how “pillbillies” drove south to obtain “hillbilly heroin” at pill mills in Florida.
AmerisourceBergen's spokeswoman said that at the time these messages were exchanged, the company was seeing more suspicious orders in Florida than in any other state. It worked closely with law enforcement to reduce the problem of "pill migration" from the South, she said.