Becton, Dickinson and Co. (BD) will now need stockholder permission for cash severance payouts to executives above a newly set limit.
It’s the latest example of how executive compensation is being scrutinized in the medtech industry, where the world’s largest device manufacturers have collectively reduced headcount even as revenue hits record highs.
BD’s medical and interventional segments make it the world’s 11th-largest device company, according to Medical Design & Outsourcing‘s 2023 Medtech Big 100 ranking.
The new executive severance policy took effect on Nov. 21, 2023, BD said in a filing with the Securities and Exchange Commission.
The board adopted the policy after a BD shareholder proposed more extensive limits at the company’s January 2023 annual meeting. Despite opposition from the board, the proposal won nearly 62% of votes cast (excluding absentions and broker non-votes).
The shareholder proposal sought to limit the total value of executive severance payouts including cash, equity or other payments, but the BD board’s policy only applies to cash severance payouts.
Details of the BD severance policy
Under the policy, BD “will not enter into any new employment, severance or separation agreement with an executive officer … or establish any new plan or policy covering an executive officer, that provides for cash severance benefits … exceeding 2.99 times the sum of the executive officer’s base salary plus target annual bonus, without seeking stockholder ratification of such agreement, plan or policy.”
The policy applies to cash payments to executives as a result of their termination, to secure a non-compete agreement, or to offset any tax liability for such payments.
In its most recent disclosure of executive compensation, BD reported $16.7 million in total pay for CEO Tom Polen, including a salary of nearly $1.28 million and nearly $2.5 million in annual bonus (his target bonus was $1.9 million).
At the time, the company estimated Polen’s severance at $33 million if terminated following a change in control and $10.2 million if terminated without cause.
The shareholder who proposed the new policy, Kenneth Steiner of Great Neck, New York, has filed identical proposals with other publicly traded corporations using the same scenario for an unnamed company without such a policy:
“If the CEO is terminated he could receive $44 million in termination pay — over 10 times his base salary plus short-term bonus. In the event of a change in control, the same person could receive a whopping $124 million in accelerated equity payouts even if he remained employed,” Steiner said. “It is in the best interest of Becton, Dickinson shareholders and the morale of Becton, Dickinson employees to be protected from such lavish management termination pay for one person.”
The shareholder proposal aimed to keep BD management “focused on improving company performance as opposed to seeking a business combination as a distraction and to trigger a management golden parachute windfall,” he continued.
Steiner is the son of late activist investor Bill Steiner, who similarly hounded corporations for decades.
The BD board opposed the proposal, saying it “would severely impact our ability to attract and retain the talent we need to execute on our strategy.”
“Long-term equity incentive awards are a critical component of our executive compensation that are tied to maximizing long-term shareholder value and are used to recruit and retain executive talent,” the board told investors. “By including long-term equity incentive awards in the calculation of the proposed limit on severance or termination benefits, the shareholder proposal discourages the effectiveness of long-term equity incentive awards.”
It’s not clear whether the board’s cash-only policy will satisfy shareholders or Steiner, who could file another proposal for the upcoming Jan. 15, 2024 annual shareholder meeting.
BD will likely file its next executive compensation disclosure in the coming weeks, along with any new shareholder proposals for that meeting.
Medical Design & Outsourcing reached out to BD and will update this post if the company has more to add.