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The Opioid Crisis, CEO Pay, and Shareholder Activism

In 2020, AmerisourceBergen Corporation, a Fortune 50 company in the drug distribution industry, agreed to settle thousands of lawsuits filed nationwide against the company for its opioid distribution practices, which critics alleged had contributed to the opioid crisis in the US. The $6.6 billion global settlement caused a net loss larger than the cumulative net income earned during the tenure of the company’s CEO, which began in 2011. In addition, AmerisourceBergen’s legal and financial troubles were accompanied by shareholder demands aimed at driving corporate governance changes in companies in the opioid supply chain. Determined to hold the company’s leadership accountable, the shareholders launched a campaign in early 2021 to reject the pay packages of executives. Should the board reduce the executives’ pay, as of means of improving accountability? Or does punishing the AmerisourceBergen executives for paying the settlement ignore the larger issue of a business’s responsibility to society? Harvard Business School professor Suraj Srinivasan discusses executive compensation and shareholder activism in the context of the US opioid crisis in his case, “The Opioid Settlement and Controversy Over CEO Pay at AmerisourceBergen.”

The Best Person to Lead Your Company Doesn't Work There—Yet

Recruiting new executive talent to revive portfolio companies has helped private equity funds outperform major stock indexes, says research by Paul Gompers. Why don't more public companies go beyond their senior executives when looking for top leaders?

Will Demand for Women Executives Finally Shrink the Gender Pay Gap?

Women in senior management have more negotiation power than they think in today's labor market, says research by Paul Healy and Boris Groysberg. Is it time for more women to seek better opportunities and bigger pay?

Consumers Punish Firms that Cut Employee Pay in Response to COVID-19

In the wake of COVID-19, firms announced both employee furloughs and (typically small) CEO wage cuts. This research shows that firms’ treatment of employees matters far more to consumers than executive pay cuts.

The Evolution of CEO Compensation in Venture Capital-Backed Startups

Resolving uncertainty related to market demand—so called “product-market” fit—marks a key inflection point in the compensation contract for CEOs of venture-capital backed firms.

Corporate Purpose and Firm Ownership

This study shows that corporate purpose varies greatly according to the nature of firm ownership, and these differences can be least partly explained by the choices and compensation of the CEOs. The greater the pay gap between CEOs and employees, the lower the sense of corporate purpose within the organization.

If the CEO’s High Salary Isn't Justified to Employees, Firm Performance May Suffer

Researcher Ethan Rouen discovers that rank-and-file employees understand the boss deserves a big salary, but only when the number is fully explained. Open for comment; 0 Comments.

Rethinking Measurement of Pay Disparity and Its Relation to Firm Performance

Among this paper’s contributions is evidence that different types of pay disparity matter in different ways to firm employees, and that disparity created by pay that is unrelated to the economics of the firm negatively impacts employee satisfaction, with consequences for firm performance. The paper also gives investors and proxy advisors a roadmap to interpret pay ratios and pay disparity. This roadmap may help regulators and firms to, respectively, mandate and prepare more informative disclosures.

Relative Performance Benchmarks: Do Boards Get It Right?

Use of relative performance based (RPE) grants has been steadily increasing. Common wisdom is that such grants help induce costly effort from the CEO by shielding them from performance shocks that are outside of their control. This study raises questions about the use of index-based benchmarks in lieu of a narrower set of specific peers.

The Stock Market and Bank Risk-Taking

It is clear that risk-taking by financial institutions is one of the main causes of financial crises and severe recessions. Yet we know relatively little about what gives rise to such risk-taking in the first place. This paper presents evidence that a focus on short-term stock prices induces publicly-traded banks to increase risk relative to privately-held banks. The findings provide support for the view that compensation schemes should require management to hold stock for longer periods to mitigate their incentives to pump up short-term earnings and the short-term stock price.