The CEO of opioid drug maker AmerisourceBergen got a $14 million payday thanks to a controversial accounting method


Steven Collis, chairman, president and chief executive of AmerisourceBergen, testifies at a congressional hearing about the opioid epidemic on May 8, 2018. (Kristoffer Tripplaar/Sipa USA/AP)

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’s 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 percent 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.

Big loss for AmerisourceBergen, big gain for its CEO

The drug distributor excluded its multibillion-dollar opioid settlement from the performance review of Steven Collis, resulting in the biggest pay package he has received as chief executive.

Net income for company (billions)

Collis’s highest compensation came the year the company its the worst loss

Compensation for

CEO Steven Collis (millions)

$14.3 million

in compensation

Note: Pay data reflects estimates given by company in annual summary compensation tables and includes salary, stock awards, option awards, non-equity incentive plan compensation, and other compensation, such as benefits, security costs

and transportation.

Sources: Bloomberg, SEC filings

Big loss for AmerisourceBergen,

big gain for its CEO

The drug distributor excluded its multibillion-dollar opioid settlement from the performance review of Steven Collis, resulting in the biggest pay package he has received

as chief executive.

Net income for company (billions)

Collis’s highest compensation came the year the company had its worst loss

Compensation for

CEO Steven Collis (millions)

Note: Pay data reflects estimates given by company in annual summary compensation tables and includes salary, stock awards, option awards, non-equity incentive plan compensation, and other compensation, such as benefits, security costs and transportation.

Sources: Bloomberg, SEC filings

Big loss for AmerisourceBergen, big gain for its CEO

The drug distributor excluded its multibillion-dollar opioid settlement from the performance review of Steven Collis, resulting in the biggest pay package he has received as chief executive.

Net income for company (billions)

Collis’s highest compensation came the year the company had its worst loss

Compensation for CEO Steven Collis

(millions)

Note: Pay data reflects estimates given by company in annual summary compensation tables and includes salary, stock awards, option awards, non-equity incentive plan compensation,

and other compensation, such as benefits, security costs and transportation.

Sources: Bloomberg, SEC filings

Big loss for AmerisourceBergen, big gain for its CEO

The drug distributor excluded its multibillion-dollar opioid settlement from the performance review of Steven Collis, resulting in the biggest pay package he has received as chief executive.

Net income for company (billions)

Collis’s highest compensation came the year the company had its worst loss

Compensation for CEO Steven Collis (millions)

Note: Pay data reflects estimates given by company in annual summary compensation tables and includ
es salary, stock awards, option awards, non-equity incentive plan compensation,

and other compensation, such as benefits, security costs and transportation.

Sources: Bloomberg, SEC filings

The substantial payout was possible only because the Pennsylvania-based drug distributor relied on a controversial accounting method: excluding legal settlement costs from its year-end chief executive evaluation. By removing the settlement, AmerisourceBergen was able to turn its $3.4 billion loss from last year — the worst 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.

AmerisourceBergen’s

‘adjusted’ pay package

Steven Collis would have forfeited more than $10 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid settlement loss

If opioid settlement loss were included

Note: See full methodology at bottom of this article. The “other” category includes dividends paid upon vesting of equity awards, company contributions to a benefit restoration plan and other compensation.

 

Source: Analysis of SEC filings

AmerisourceBergen’s

‘adjusted’ pay package

Steven Collis would have forfeited more than $10 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid settlement loss

If opioid settlement loss were included

Note: See full methodology at bottom of this article. The “other” category includes dividends paid upon vesting of equity awards, company contributions to a benefit restoration plan and other compensation.

 

Source: Analysis of SEC filings

AmerisourceBergen’s ‘adjusted’ pay package

Steven Collis would have forfeited more than $10 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid settlement lo
ss

If opioid settlement loss were included

Note: See full methodology at bottom of this article. The “other” category includes dividends paid upon vesting of equity awards, company contributions to a benefit restoration plan

and other compensation.

 

Source: Analysis of SEC filings

AmerisourceBergen’s ‘adjusted’ pay package

Steven Collis would have forfeited more than $10 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid

settlement loss

If opioid settlement

loss were included

Note: See full methodology at bottom of this article. The “other” category includes dividends paid upon vesting of equity awards, company contributions to a benefit restoration plan

and other compensation.

 

Source: Analysis of SEC filings

Similarly, when rival drug distributor Cardinal Health evaluated the performance of chief executive Mike Kaufmann last fall, its adjusted earnings removed the impact of the 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 is publicly available to verify exactly how much pay the executives forfeited.

Cardinal Health’s ‘adjusted’

pay package

Mike Kaufmann would have forfeited $1.5 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid settlement loss

If opioid settlement loss were included

Note: See full methodology at bottom of this article. The “other” category includes dividends paid upon vesting of equity awards, company contributions to a benefit restoration plan and other compensation.

 

Source: Analysis of SEC filings

Cardinal Health’s ‘adjusted’ pay package

Mike Kaufmann would have forfeited $1.5 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid settlement loss

If opioid settlement loss were included

Note: See full methodology at bottom of this article. The “other” category includes dividends paid upon vesting of equity awards, company contributions to a benefit restoration plan and other compensation.

 

Source: Analysis of SEC filings

Cardinal Health’s ‘adjusted’ pay package

Mike Kaufmann would have forfeited $1.5 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid settlement loss

If opioid settlement loss were included

Note: See full methodology at bottom of this article. The “other” category includes allowance for personal use of corporate aircraft, company contributions to a 401(k) plan and other compensation.

 

Source: Analysis of SEC filings

Cardinal Health’s ‘adjusted’ pay package

Mike Kaufmann would have forfeited $1.5 million if the company had counted the opioid settlement in his performance evaluation. Numbers in millions of dollars.

Calculated without opioid

settlement loss

If opioid settlement

loss were included

Note: See full methodology at bottom of this article. The “other” category includes allowance for personal use of corporate aircraft, company contributions to a 401(k) plan and other compensation.

 

Source: Analysis of SEC filings

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’s pay package when it comes to a vote 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 Tuesday. 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 has 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 experiencing growing 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 been paid more than $100 million in his decade as chief executive.

“This epidemic started with money and continues to be about money,” said Emily Walden, who lost her son T.J. to an opiate overdose in 2012 and now 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 and Cardinal Health, along with 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 don’t accurately reflect management’s day-to-day performance. One study found that as many as 97 percent of companies in the S&P 500 index used nonstandard accounting metrics in 2017, up from 59 percent in 1996.

Activist shareholders have pushed back against this trend, arguing that 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 percent, up from 7 percent the previous year, spurring Cardinal’s managers to open a dialogue with shareholders, Meyer said.

In his statement, Timmerman 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 percent 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 still 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 that tracked the path of every pain pill sold in the United States during those years. 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 tremendous human cost of the opioid epidemic and pledged to increase efforts to stop shipments to illegal dispensaries, or pill mills.

But 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, according to a report on the event by the Philadelphia Inquirer.

“We try to ship what our customers need,” Collis told the audience, according to the newspaper. “We don’t know who our customer is.”

In her statement, Esposito said the number of pills shipped by AmerisourceBergen represents a small fraction of the total market for opioids and fell below the annual quotas of allowable drugs set by the DEA. She said opioid products constitute less than 2 percent 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’s tenure, states, tribes and local governments have claimed that AmerisourceBergen does bear responsibility for its role in flooding the market with pills. Drawing on depositions of industry executives and subpoenas of internal company emails, plaintiffs have alleged that Ame
risourceBergen 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 theme song of the TV series “The Beverly Hillbillies,” 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 those messages were exchanged, the company was seeing more suspicious orders in Florida than any other state. It worked closely with law enforcement to reduce the problem of “pill migration” from the South, she said.

Between 2012 and 2015, AmerisourceBergen reported more than 400 suspicious orders from a single pharmacy in West Virginia, including 100 suspicious orders in the span of five months, according to a House Energy and Commerce Committee report on opioid distribution in the state. Despite repeatedly flagging the pharmacy as suspicious, it continued to supply the store with drugs for three years, investigators found.

Esposito said AmerisourceBergen shipped only to pharmacies with active state and DEA licenses.

In emails from 2015, employees on AmerisourceBergen’s drug diversion team appeared troubled by the Food and Drug Administration’s decision to approve OxyContin tablets for patients ages 11 to 16 with severe pain.

“I would be the last person to ever want to see a child in pain when there is a safe solution but this frightens me,” Sharon Hartman, AmerisourceBergen’s director of pharmacy compliance and diversion control, said in one of the emails that was presented as evidence in the Cleveland case.

When Collis and four other top drug industry executives who were called to testify before Congress in 2018 were asked whether the actions they or their companies took contributed to the opioid epidemic, four of them, including Collis, said “no.”

“It’s a no for AmerisourceBergen,” he said.

Meryl Kornfield, Magda Jean-Louis, Steven Rich and Scott Higham contributed to this report.

Methodology

Estimates of what Collis and Kaufmann could have made if opioid settlements were reflected in their performance evaluations are based on an analysis by Michael Pryce-Jones, a corporate governance analyst for the International Brotherhood of Teamsters. The estimate for Collis assumed the executive would have missed his targets for earnings per share and operating income, lowering his cash bonus. It assumes he would have met his target for free cash flow, though the company did not provide enough data to make that determination. With the settlement included, AmerisourceBergen’s average growth rate of earnings per share for the previous three years would have been negative, disqualifying Collis for a portion of his performance shares.

The estimate for Kaufmann assumed he would have kept all his equity awards but missed his target for operating earnings, lowering his cash bonus. The analysis assumes he would have met his targets for “culture” and “cost savings,” though the company did not provide enough data to verify that, Pryce-Jones said.

A previous version of a chart in this article mislabeled AmerisourceBergen’s net income in 2011. It was $0.7 billion.