In 2012, the federal government recovered $5 billion in settlements from drug companies that manufactured, marketed and sold products in violation of federal law.

Today, a coalition of 13 investors, led by the UAW Retiree Medical Benefits Trust, announced they had reached an agreement with six major companies to claw back executive pay when individuals in a company cause serious financial harm as a result of violating health care laws and company policies. 

Amgen, Bristol-Myers Squibb, Eli Lilly and Co., Johnson & Johnson, Merck and Pfizer joined the 13 institutional investors, endorsing a set of principles aimed at deterring violations of health care laws. The principles, Principal Elements of a Leading Recoupment Policy, were jointly developed by the companies and the investor coalition as a best practice. 

"Properly designed, compensation policies can be effective antidotes to compliance violations by affirming accountability that has real consequences," said Meredith Miller, chief corporate governance officer, UAW Retiree Medical Benefits Trust.

The members of the working group, facilitated by Johnson & Johnson and the UAW Retiree Medical Benefits Trust, believe that the principles will help deter unethical and inappropriate behavior and that the collaborative process that led to these principles can serve as a model to apply to other corporate-shareholder engagements going forward.

Many top companies have clawback policies, but these policies are only triggered when there is a financial restatement and seek to recover compensation that has already been paid. A 2012 Equilar study of Fortune 100 companies found that while 85% of the companies surveyed had clawback policies, only 25% of these policies contain an ethical misconduct trigger not associated with a financial restatement.

"We believe these principles strengthen the alignment between shareholders and management by providing potent but balanced disincentives for bad behavior," said New York State Comptroller Thomas P. DiNapoli.

"These clawback principles give boards a mechanism to hold executives accountable for misconduct and compliance violations, which is especially important in highly regulated industries such as health care," New York City Comptroller John C. Liu said. "Other companies should look to these principles as a model for advancing the highest levels of ethics in the workplace."