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GMI Ratings, a governance research firm, produces a semi-annual Risk List of companies with a high level of concern regarding future returns. The proprietary accounting and governance metrics used by GMI focus on factors which extend beyond traditional fundamental measures.
Some of these factors show constancy over time, while others are dependent on recent actions by management. These actions may be a function of a changing business strategy; market conditions that bear on the company’s operations; or an attempt by management to disguise operating problems. In all cases, these companies require a higher level of scrutiny than their peers in order to better understand why they have been flagged for the number of extreme measures they exhibit.
The Accounting and Governance Risk (AGR) rating uses an entirely quantitative, statistical process to identify accounting items associated with fraudulent financial statements, as well as governance characteristics associated with firms prosecuted by the US SEC for accounting fraud.
The AGR Rating is also expressed in two ways, first as a percentile score ranging from 1 to 100, and second in four categories that are associated with ranges of these scores and are expressed as ranging from Conservative to Very Aggressive. Anything that's ranked from 1 to 10 is considered very aggressive.
The AGR Rating is predictive of the near-term risk of negative events. Low rated companies are more likely to experience different types of negative events – not only regulatory actions, but shareholder litigation, material restatements and other related events – which have a clear impact on investment risks and returns.
Poorly rated companies have lower returns and greater price volatility. The AGR Rating is also a key component of other, more specialized GMI Ratings risk models, such as the Litigation Risk Model and the Financial Distress Risk Model.
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#27 The Shaw Group Inc.
AGR Score: 10
Market cap ($MM): $1,787
Industry: Engineering / Construction
The Shaw Group’s company profile indicates an entrenched board that contributes to management-friendly pay practices.
Not only have three Shaw board members served for at least 17 years, but four directors (including all three long-tenured directors) were on the board when the company was delisted due to a violation of exchange regulations in 2007. Regarding pay, Chairman and CEO J. M. Bernhard, Jr. receives a base salary that is more than twice the limit for deductibility under Section 162(m) and he is entitled to a potential payment of over $24.3 million in the event of termination following a change in control.
Finally, The Shaw Group has a “Very Aggressive” AGR score of 10 on a scale of 100, with concerns including two recent share repurchase programs, Asset-Liability Valuation red flags that include high expected returns on assets, and Expense Recognition issues focused primarily on excessive deferred income tax assets.
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#26 Northrop Grumman Corporation
AGR Score: 10
Market cap ($MM): $15,032
Industry: Aerospace / Defense
Governance concerns at defense company Northrop Grumman are firmly rooted in executive compensation practices that reward CEO Wesley Bush with significant amounts of “all other compensation” that notably include over $1.6 million in security protection and excessive stock option grants that vest simply after the passage of time.
Furthermore, Lead Independent Director Lewis Coleman received over $5.2 million in costs related to security protection that included housing him in a more secure residence and providing for his personal travel and travel required by his employer using company-provided aircraft to ensure his security; we are loathe to call Mr. Coleman “independent” given the company’s responsibility for his well-being.
In addition, the company has been cited by The Project On Government Oversight (POGO), a nonpartisan independent watchdog that champions good government reforms, as the third worst federal contractor—ranked just behind two if its competitors, Lockheed Martin and Boeing Company—with over 35 instances of misconduct since 1995 that include making improper charges and false or misleading claims, and inadequately disclosing information to the U.S. government.
Finally, Northrop has a “Very Aggressive” AGR score of 10 on a scale of 100, highlighted by Asset-Liability Valuation red flags that include a high Pension Liability Discount Rate, relatively high expected returns on assets, and large Goodwill, which is an indication of overvalue assets.
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#25 Raytheon Company
AGR Score: 10
Market cap ($MM): $17,194
Industry: Aerospace / Defense
Our concerns with defense contractor Raytheon include the company’s executive compensation practices, where internal pay equity issues result from CEO and Chairman William Swanson’s fiscal 2011 total summary compensation of $17.1 million compared to the median of $4.5 million for the other named executive officers.
Also, not only may the Compensation & Management Development Committee increase annual incentive awards by as much as 200% solely at its discretion, but Mr. Swanson received such generous 2011 perquisites as his personal use of company aircraft, tax gross-ups, home security system expenses, and spousal travel expenses.
Furthermore, the CEO realized over $11.1 million on the vesting of restricted stock, has accumulated more than $30.8 million in pension benefits, and is entitled to over $32 million in the event of a change in control. Finally, Raytheon’s AGR score of 10 indicates more accounting and governance risk than 90% of companies and is partly driven by accounting red flags in the area of Expense Recognition and Asset-Liability Valuation, along with recent high risk events that include a $2 billion share repurchase plan and several high level acquisitions.
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#24 Trinity Industries, Inc.
AGR Score: 9
Market cap ($MM): $2,011
Industry: Engineering / Construction
At Trinity Industries, compensation policies favor not only Chairman and CEO Timothy Wallace but also his brother (an officer of a subsidiary of the company who received total compensation of $1,178,193 for 2011) and father (former CEO of the company who is entitled to an annual salary of $5,000, reimbursement for out-of-pocket medical expenses, and use of the company’s aircraft for up to 30 flight hours for the year).
It is also noteworthy that five of the company’s directors (including four members of the Human Resources Committee) with at least two years of service do not share the risk of investors, as they hold zero company shares that are not exercisable stock options.
In addition, annual incentive awards and performance-based equity awards granted in 2011 for 2011-2013 are both based on EPS results, which suggest executives are being paid twice for achieving the same results. Finally, the company’s AGR score of 9 indicates more accounting and governance risk than 91% of companies and is driven by the Expense and Revenue Recognition issues of large inventories, large operating revenues, and comparatively low cost of goods sold and SG&A expenses.
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#23 Kirby Corporation
AGR Score: 9
Market cap ($MM): $2,851
Industry: Marine Transportation
Marine transportation and diesel engine service company Kirby Corporation is poorly rated due to an entrenched board with related party transactions, internal pay equity concerns, and accounting issues.
Indeed, six Kirby directors are long-tenured with 13 to 39 years of service, the overall average board tenure is more than 15 years, and related-party transactions include the company purchasing air transportation services and office lease payments from the company of its former chairman.
Regarding compensation, Chairman and CEO Joseph H. Pyne’s fiscal 2011 total summary compensation is well over four times the median for the other named executive officers and comprises slightly more than half of total NEO pay for the year. Moreover, Kirby’s AGR (accounting risk) is “Very Aggressive,” including poor ratios for Goodwill/Total Assets, Inventory/Cost of Goods Sold as well as Pension Assets Expected Return Domestic.
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#22 Lennar Corporation
AGR Score: 9
Market cap ($MM): $4,192
Industry: Homebuilding
Lennar Corporation, the third-largest home building company in terms of revenue, is badly rated by GMI for concerns surrounding the composition of its board, accounting practices, and recent investigations into the company by the Labor Department.
CEO and President Stuart A. Miller controls almost 50 percent of Lennar’s total voting power with a board that holds substantial connections to management and a roster of directors averaging 18 years of tenure. Moreover, the AGR Rating for Lennar is Very Aggressive, indicating higher accounting and governance risk than 91 percent of comparable companies, including poor ratios for Selling G&A Expenses/Operating Expense and Other Assets/Assets.
Finally, Lennar Corporation and other large home builders have been targeted in a U.S. Department of Labor investigation into possible wage violations that circumvent federal wage laws; the misclassification of workers is a serious offense that has cost the federal government billions in previous years.
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#21 Monsanto Company
AGR Score: 9
Market cap ($MM): $42,355
Industry: Chemicals - Agricultural
Concerns at agricultural biotechnology firm Monsanto Company are generated by a constant swirl of litigation, pending investigations, and environmental issues, along with pay practices not aligned with shareholder interests and concerning financial accounting practices. Notable highlights include routine lawsuits targeting small farmers, the company’s responsibility for over 40 EPA Superfund waste sites, and numerous settlements with plaintiffs injured by Monsanto products.
In the meantime, the company has been cited for SOX violations (only four other S&P 500 companies are unable to implement and maintain effective internal control over financial reporting); CEO Hugh Grant’s annual pay typically features option grants that vest without performance-based features; and the company’s takeover defenses are intended to reduce board accountability to shareholders.
Lastly, the company’s AGR score of 9 indicates more accounting and governance risk than 91% of companies and is driven by the company’s recent $1 billion share repurchase program, an aggressive acquisitions policy, and several red flags in the area of Revenue Recognition.
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#20 The Geo Group, Inc.
AGR Score: 8
Market cap ($MM): $1,331
Industry: Business Support / Supplies
Outsourced correctional services company The Geo Group is dominated by a relatively small board of long-tenured directors—four of six directors have served for at least a decade and represent the chairs and/or majorities on all of the board’s standing committees.
Compensation philosophy at Geo Group results in a CEO whose total summary compensation is four times greater than the median for other named executive officers; no equity grants tied to company performance; and a lack of clawback provisions related to the recoupment of incentive compensation awards and executive stock ownership guidelines. The board also signed off on several related party transactions with members of the CEO’s family in 2011.
In addition, the company was recently involved in two high-profile lawsuits alleging abuse or negligence by Geo personnel: one of these, a wrongful death action brought by the family of a former Geo facility inmate, resulted in a $6.5M verdict against the company. Finally, the company’s “Very Aggressive” AGR rating is dominated by several Asset-Liability Valuation red flags that include high levels of debt in relation to equity and low asset turnover.
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#19 DST Systems, Inc.
AGR Score: 8
Market cap ($MM): $2,353
Industry: IT Services / Consulting
DST Systems, Inc., a provider of information processing and software, is among our most poorly-rated companies due to concerns related to board composition, executive compensation and accounting.
The company’s board is classified with a poison pill; there are three directors age 75 and older, suggesting succession planning concerns; and there are no women on the board.
Executive compensation is also a concern, with more than 30 percent of shares voting against pay plans that include more than $250,000 each year in personal use of company aircraft for CEO Thomas A. McDonnell.
In terms of accounting, DST Systems has higher accounting and governance risk than 92% of companies, including poor ratios versus its industry in Debt/Equity and Cash Ratio as well as Intangible Assets/Assets, a red flag for overvalued assets.
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#18 CBOE Holdings, Inc.
AGR Score: 8
Market cap ($MM): $2,335
Industry: Investment Services
Diversified investment company Chicago Board Options Exchange Holdings, Inc. is among our most poorly-rated companies due to concerns with the compensation of the board, executive compensation policy, and patent-infringement claims brought by the International Securities Exchange in May, as well as various accounting concerns.
CBOE’s board includes four directors who are Trading Permit Holders or affiliated with Trading Permit Holders, meaning a substantial portion of their income is derived from activities cleared on company exchanges.
Forty-percent of the board is long-tenured, including those in key decision making roles, and the compensation committee continues to award discretionary bonuses on an annual basis and fixed pay in the upper echelons of its peers, including lofty base salary and perquisites.
Finally, CBOE has been flagged as very aggressive in accounting for issues like extreme operating margins and levels of intangible assets.
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#17 RPM International Inc.
AGR Score: 8
Market cap ($MM): $3,506
Industry: Chemicals - Commodity
RPM International is notably balanced in its governance-related issues, as indicated by red flags in compensation, board composition, and takeover defenses.
The company’s poison pill and classified board structure serve to reduce board accountability to shareholders; its board is dominated by long-tenured directors who are at least 70 years old, including the CEO’s father (who is also a former CEO); and pay practices include long-term equity grants that vest simply over time and performance-periods as short as one year.
Luckily, none of these deficiencies are lost on shareholders as all the directors received between 14 and 43% withhold votes at their last election, which represents a considerable amount of shareholder dissent.
Finally, the company’s poor AGR rating is dominated by several Asset-Liability Valuation red flags that include relatively high expected returns on assets along with excessively large intangibles and large goodwill, both of which are key indicators of overvalued assets.
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#16 L-3 Communications Holdings, Inc.
AGR Score: 8
Market cap ($MM): $6,783
Industry: Aerospace / Defense
Concerns over the composition of the board, takeover defenses, poor compensation policy, and accounting metrics result in a high risk warning for Aerospace/Defense Products & Services provider L-3 Communications Holdings, Inc. For example, more than 40 percent of the board has served in excess of a decade while more than 40 percent are also at least 70 years of age, re-igniting succession planning issues that came to light when the company’s co-founder, chairman and CEO Frank Lanza passed away in June 2006.
The company’s compensation policy uses the same performance measures for annual and long-term awards (EPS and Free Cash Flow), rewarding executives multiple times for the same achievements.
In terms of accounting, L-3 Communications is more aggressive than 92 percent of the companies we cover, with flags primarily relating to Asset-Liability Valuation and including Pension Assets Expected Return Domestic and Goodwill/Total Assets.
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#15 Cisco Systems, Inc.
AGR Score: 8
Market cap ($MM): $89,621
Industry: Communications Equipment
Technology titan Cisco Systems, Inc. is considered high risk due to concerns regarding executive compensation and accounting.
Despite potential dilution from Cisco’s stock option plans that has exceeded 20 percent for at least the past four years, the company continues to award stock options to executives to the tune of $12.5 million for CEO John T. Chambers in 2011 and grants with a value between $7.2 million and $10.5 million for other named executive officers.
Cisco’s financial statements also receive an AGR score of (5), indicating more governance risk than 95% of comparable companies, and the company has had a lower AGR score than most companies since December 2009.
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#14 Community Health Systems
AGR Score: 7
Market cap ($MM): $2,039
Industry: Healthcare Facilities
Healthcare service provider Community Health Systems, Inc. meets the criteria for our riskiest companies due to concerns over low support for executive pay plans and several significant accounting flags.
Indeed, the company’s Say on Pay vote managed just 33 percent support at the May 2012 annual meeting, presumably resulting from poor compensation policy which includes enormous annual pension contributions ($8 million a year for three years running), the use of the same performance metrics for annual and long-term plans, and potential severance payments of nearly $75 million. Community Health’s AGR Rating is just seven on a scale of a hundred, due to poor ratios for Inventory/Cost of Goods Sold, Cost of Goods Sold/Revenue, Debt/Equity, and Cash Ratio.
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#13 MGM Resorts International
AGR Score: 7
Market cap ($MM): $5,569
Industry: Casinos / Gaming
Casino and resort operator MGM Resorts International is among our most poorly-rated companies due to concerns related to the make-up of the board, costly litigation and other accounting concerns, purported ties to Chinese gang activity, and declining share ownership by the principal shareholder.
The disastrous City Center construction project in Las Vegas has resulted in a multitude of securities and derivative lawsuits and the controlling interest in MGM China pairs the company with Hong Kong businesswoman Pansy Ho, believed to have extensive links to Chinese organized crime. Kirk Kerkorian, principal shareholder and CEO of MGM, sold $20 million in company shares in February 2012, reducing his ownership to 18.7 percent of the company, down from 53.4 percent as recently as 2008.
Also, with an AGR Rating of just seven, MGM places in the worst 10 percent of companies in our coverage universe, including poor ratios for Asset-Liability Valuation, Prepaid Expenses/Operating Expense, and Operating Revenue/Operating Expense.
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#12 Wells Fargo & Company
AGR Score: 7
Market cap ($MM): $167,016
Industry: Banks
Recent investigations and litigation along with concerns over the company’s pay practices serve to highlight our poor rating for Wells Fargo.
The SEC has accused the company of ignoring its subpoenas as it investigates whether Wells Fargo misled investors about the risks of securities it sold from September 2006 to early 2008. Also, in February 2012, Wells Fargo and four other mortgage services reached a $25 billion settlement with the U.S. government and 49 states, ending an investigation into abusive foreclosure practices after the collapse of the housing market. Wells Fargo's share of the settlement was $5.35 billion.
Regarding compensation policies, CEO and Chairman John G. Stumpf’s fiscal 2011 base salary of $2.8 million was 180% over the IRC tax deductibility limit; similarly, five other named executives exceeded the IRC tax deductibility limit, raising concerns about the decision-making of the board when it comes to protecting shareholders' interests.
Additionally, long-term incentive compensation consists solely of performance share awards—over $12 million for the CEO—that pay out even if the company under performs all but one of its peers. Finally, the company’s AGR has been “Very Aggressive” for the past 12 quarterly periods and is driven by litigation concerns along with Revenue Recognition issues.
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#11 Constellation Brands, Inc.
AGR Score: 6
Market cap ($MM): $3,166
Industry: Beverages - Distillers / Wineries
The world’s leading wine company, Constellation Brands, is poorly rated by GMI for concerns over minority shareholder voting rights, high dilution resulting from employee stock options, management structure and a host of accounting concerns.
The company has two classes of common stock, with the Sands family owning all Class B shares, controlling 55 percent of total voting power and thus the outcome of all proposal voting. Furthermore, Robert and Richard Sands, brothers serving as CEO and chairman, respectively, continue to receive mega-grants of time-vesting stock options contributing to a dilution rate which has exceeded 30 percent for the past several years.
In terms of accounting, Constellation Brands has a “Very Aggressive” AGR score of just 6 on a scale of 100, including poor ratios on Asset Turnover, Inventory/Cost of Goods Sold, and Expense Recognition, including Prepaid Expenses/Operating Expenses.
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#10 TransDigm Group Incorporated
AGR Score: 6
Market cap ($MM): $6,494
Industry: Aerospace / Defense
Governance concerns at TransDigm Group Incorporated center on executive compensation practices, as CEO and Chairman W. Nicholas Howley received over half of the fiscal 2011 total summary compensation granted to named executive officers (NEOs), suggesting significant internal pay equity issues.
To illustrate this point, the four other NEOs earned an aggregate total summary compensation of nearly $17.5 million in 2011 while the CEO’s option award was valued at almost $17.9 million. Furthermore, annual bonuses are discretionary and Mr. Howley also received a strikingly high 2010 fringe benefit of $9.5 million in dividend equivalent payments.
Lastly, the company’ AGR has been “Very Aggressive” for the past six rating periods and reflects Expense and Revenue Recognition issues along with excessively large levels of intangibles and Goodwill that are red flags for overvalued assets.
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#9 Scripps Networks Interactive, Inc.
AGR Score: 6
Market cap ($MM): $8,574
Industry: Broadcasting
Scripps Networks is a controlled company—in which a single large shareholding block maintains effective legal control over the affairs of the corporation—and has compensation practices that are not aligned with the interests of its minority shareholders.
We note that the CEO’s total summary compensation was over three times the median total summary compensation for other named executive officers and included “all other compensation” of $517,635 consisting of such generous perquisites as club dues ($24,239) and tax gross-ups ($130,292).
On top of that, not only do executives receive a large amount of equity that vests over time without performance-contingent criteria, but they also are eligible for performance-based restricted share units that pay out even if the company under performs 70% of its peers.
Lastly, the company’s sudden decline in AGR is driven by several high risk events which include a $1 billion share repurchase program, an aggressive acquisitions strategy, and an abnormal change in employee payroll.
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#8 Mylan Inc.
AGR Score: 6
Market cap ($MM): $9,237
Industry: Pharmaceuticals - Diversified
Drug maker Mylan’s continued use of discretionary cash bonuses, equity awards that vest without performance-contingent criteria, and generous perquisites that include tax gross-ups and personal use of company aircraft have finally caught up with the company as shareholders rejected the company’s 2012 Advisory Vote on Executive Compensation (Say on Pay).
Of particular note, Executive Chairman and former CEO Robert Coury has already accumulated over $25 million in retirement benefits for only ten years of service. On top of that, Mylan has settled with three states and the federal government over the past two years for allegedly inflating the cost of prescription drugs pertaining to Medicaid pricing.
Finally, the company’s AGR has recently been deemed “Very Aggressive” due partly to Expense Recognition issues (including low R&D and SG&A expenses along with excessive deferred income tax assets), Asset-Liability Valuation red flags (for relatively low cash rations along with high levels of debt in relation to equity), and a recent $350 million share repurchase program.
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#7 Arch Coal Inc.
AGR Score: 5
Market cap ($MM): $1,295
Industry: Coal
Arch Coal Inc. ranks among our worst-rated companies due to abundant legal and sustainability problems, and significant accounting concerns. Incidents and settlements in 2011 included a March 2011 settlement for violations of the Clean Water Act in three states, the death of a miner in Virginia in August 2011, and a wrongful death lawsuit settlement with six families in November 2011.
Arch Coal has higher accounting and governance risk than 95 percent of companies, including poor ratios for Pension Liability Discount Rate Domestic, Goodwill/Total Assets and Selling G&A Expenses/Operating Expense.
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#6 HCA Holdings Inc.
AGR Score: 4
Market cap ($MM): $11,299
Industry: Healthcare Facilities
Health care provider HCA Holdings, Inc. is considered high risk due to concerns related to accounting and compensation, as well as the dominant control of Hercules Holding II, LLC.
Hercules Holding II, LLC nominates all directors, controls the vast majority of all voting stock, and essentially elects the entire board of directors, including the compensation committee. That committee bases bonuses on a single metric-EBITDA- which is also used in the determination of long-term awards.
Finally, the company rates just 4 on a scale of 100 in terms of AGR, primarily as a result of poor ratios for Inventory/Cost of Goods Sold, Costs of Goods Sold/Revenue, and its Cash Ratio.
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#5 Marathon Oil Corporation
AGR Score: 4
Market cap ($MM): 17,627
Industry: Integrated Oil / Gas
Worldwide energy company Marathon Oil is considered high-risk due to concerns over the construction of the board, executive compensation and numerous accounting flags.
Most concerning is the compensation committee, where two members serve as chairman and CEO at other S&P 500 companies, while two other members of the committee include serially over-committee director Shirley Ann Jackson and Dennis H. Reilley. Reilley has been flagged in our system for his service on the board of Entergy Corporation, which filed for Chapter 11 in 2005.
Furthermore, pay is not tied to performance, with performance units that pay out in cash even if the company under performs its peers.
Also, Marathon Oil’s “Very Aggressive” AGR score of 4 indicated higher accounting and governance risk than 96 percent of North American companies, with poor ratio flags for Inventory/Costs of Goods Sold, Pension Assets Expected Return Domestic, and Operating Revenue/Operating Expense.
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#4 Kraft Foods Inc.
AGR Score: 4
Market cap ($MM): $67,799
Industry: Food Processing
Kraft Foods (soon to be named Kraft Foods Group, Inc. following the completion of its split into two independent companies) is among our most poorly rated companies due to concerns over executive compensation, accounting metrics, and recent legal developments.
For example, Chair and CEO Irene Rosenfeld’s fiscal 2011 Total Summary Compensation, $22 million, is more than five times the median of other named executive officers and includes pay untied to performance such as hefty pension payments, mega-grants of stock options, performance-shares that pay out for under performing peers and annual incentives than can be increased as much as 80 percent by the compensation committee for a subjective assessment of individual performance.
Furthermore, in October 2011, Germany’s Federal Cartel Office imposed fines against Kraft Foods Germany for price-fixing; and lawsuits have been mounting since a Canadian investigation into chocolate manufacturers, including Kraft, turned up violations of antitrust laws.
Finally, the company’s financial statements reflect an AGR score of just 4 out of 100, indicating more accounting risk than 96% of companies.
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#3 Netflix, Inc.
AGR Score: 2
Market cap ($MM): $3,644
Industry: Personal Services
Netflix can’t seem to avoid the headlines, but when your stock price falls from nearly $300 to about $60 in less than a year, it’s hard to hide behind a little red envelope.
Our concerns are highlighted by a compensation program that is simplistically limited to a cash salary and equity grants of stock options that vest simply after time without performance-based features, along with takeover defenses that reduce board accountability to shareholders.
Furthermore, the company’s AGR score of 2, which indicates more accounting and governance risk than 98% of companies, serves to illustrate many of our other key concerns. As an example, a class action lawsuit filed at the beginning of the year alleged that Netflix and certain of its officers and directors issued false and misleading statements regarding the company's business practices and its contracts with content providers, causing the company's stock to trade at artificially inflated prices.
On top of that, the company’s restructuring of its online and DVD rental services may have led to a loss of over 5 million subscribers.
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#2 Medtronic, Inc.
AGR Score: 1
Market cap ($MM): $38,845
Industry: Advanced Medical Equipment
Healthcare equipment supplier Medtronic, Inc. meets our criteria for a high-risk company with repeated litigation problems, compensation concerns and the very worst accounting rating that our algorithm will allow.
The company settled a class action suit for downplaying the risks associated with its Infuse bone graft device, in March 2012 for $85 million, amidst allegations that Medtronic paid illegal kickbacks to doctors. These events followed a December 2011 settlement of almost $24 million to settle allegations of kickbacks paid to doctors to encourage the use of its pacemakers and its defibrillators.
The company’s compensation committee includes the CEOs of General Mills and Delta Air Lines, Inc. among its four members, and uses EPS and revenue growth for both annual bonuses and long-term awards, potentially rewarding executives twice for the same achievement.
Furthermore, Medtronic’s AGR score of 1 indicates higher accounting and governance risk than all but one percent of our North American coverage universe.
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#1 Pfizer Inc.
AGR Score: 1
Market cap ($MM): $165,787
Industry: Pharmaceuticals - Diversified
Concerns at Pfizer can easily be summarized by focusing on two key areas: compensation practices and litigation.
CEO and Chairman Ian C. Read received fiscal 2011 total summary compensation worth almost four times the median total summary compensation for the other current named executive officers which included pension increases of almost $7 million (nearly $20 million over the past three years) and over $9 million in equity that does not rely on performance-contingent criteria.
Regarding litigation, highlights include: 1) a $2.3 billion settlement related to the company’s alleged past off-label promotional practices related to certain payments to health-care professionals to encourage them to prescribe Pfizer medicines; 2) a settlement over allegations that drug prices were inflated for sales to three state agencies; and 3) a $60M settlement regarding an investigation by U.S. regulators into whether the company paid bribes to win business abroad.
Finally, the company’s AGR has been “Very Aggressive” for 11 of the past 12 quarterly periods and is notably driven by the company’s Asset-Liability Valuation, including relatively high expected returns on assets and high levels of intangibles.
