The public company I chose to research is Bristol Myers Squibb
Company (BMY). I chose this company because my mother has
worked for BMY the past 25 years and in those years her pay has
increased 5 times her original hired annual pay. Giovanni Caforio is
the CEO of BMY and his annual salary for 2021 was $1.7 million with
additional stock awards, Non-equity Incentive Pay Compensation,
and other compensations his total compensation for 2021 was $19.7
million. This is 133 times the median employees pay for 2021. The
CEO makes 158 times my mother’s annual salary which I found rather
interesting. The CEO entire compensation breakdown by percentage
is Salary - 10%, Annual Incentive - 14%, Market Share Units - 30%,
and Performance Share Units - 46%. The Performance Shares are
only applying to Vice President and above. In the company’s Proxy
Statement (Schedule 14A) they state that a thorough Risk
Assessment of Compensation Policies and Practices was conducted
by the Compensation and Management Development Committee.
They stated, “Based on this review, the Committee concluded that
our material compensation policies and practices are not reasonably
likely to have a material adverse effect on the company. On a global
basis, our compensation policies and practices contain many design
features that mitigate the likelihood of inducing excessive or
inappropriate risk-taking behavior.” (SEC.gov 2022) This committee
annually evaluates the incentive programs to determine if the
incentive pay encourages excessive or inappropriate risk-taking.
In my opinion, there are a few benefits to compensating executives
with stock or the option to purchase stock. This allows the company
to share ownership with the employees, which in turn aligns the
executive and shareholder interests. Performance shares allows for
the business to evaluate the performance of the executive before
shares are awarded. This is beneficial to the executive as well as the
company. The costs however are very significant. It may be very
difficult to set performance targets and in a down market the shares
quickly become valueless. “The main goal in granting stock options is,
of course, to tie pay to performance—to ensure that executives profit
when their companies prosper and suffer when they flounder. Many
critics claim that, in practice, option grants have not fulfilled that goal.
Executives, they argue, continue to be rewarded as handsomely for
failure as for success.” (Harvard Business Review, 2014) This is
prominent in BMY because even with the pandemic the CEO has
continued to receive $13+ million in shares in each of the last 3 years.
AS 2110: Identifying and Assessing Risks of Material Misstatement
sections 10, 10a, and 11 would be the best way to audit executive
compensation. “Required audit procedures include reading
employment and compensation contracts with executive officers and
reading proxy statements.” (SQ 2013) Utilizing these standards will
assist the auditor in determining if there is any chance of fraud and
material misstatements. BMY auditors are required to look at these
items which is why the Proxy Statement (Schedule 14A) is so lengthy
and detailed.
References
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
. Sec.gov. (n.d.). Retrieved September 29, 2022, from
https://www.sec.gov/Archives/edgar/data/14272/0001140361220
10987/ny20002084x1_def14a.htm#tRAOCP
What you need to know about stock options
. Harvard Business
Review. (2014, August 1). Retrieved September 29, 2022, from
https://hbr.org/2000/03/what-you-need-to-know-about-stock-
options
Highest-paid CEOS: AFL-CIO
. AFL. (n.d.). Retrieved September 29,
2022, from https://aflcio.org/paywatch/highest-paid-ceos
As 2110: Identifying and assessing risks of material misstatement
.
Default. (n.d.). Retrieved September 29, 2022, from
https://pcaobus.org/oversight/standards/auditing-
standards/details/AS2110
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance
Services: A Systematic Approach 11th Edition. McGraw Hill
Education.
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