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Eli Lilly Doesn’t Plan to Claw Back Past Pay From Former CFO

Eli Lilly Doesn’t Plan to Claw Back Past Pay From Former CFO

Eli Lilly & Co. said it won’t try to claw back past pay from newly departed finance chief Joshua Smiley, but moved to take away his 2020 bonus an

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Eli Lilly & Co. said it won’t try to claw back past pay from newly departed finance chief Joshua Smiley, but moved to take away his 2020 bonus and other incentive compensation following years of rule tightening around executive conduct and recuperation of funds at the drugmaker.

Indianapolis-based Eli Lilly, known for drugs that treat diabetes, cancer and other diseases, Tuesday said Mr. Smiley resigned following allegations of an inappropriate personal relationship with an employee. The company said it recently launched an internal investigation that revealed consensual though inappropriate personal communications between Mr. Smiley and certain employees.

Eli Lilly said it doesn’t plan to claw back past pay because the matter wasn’t related to financial controls, financial statements or any other business matters or judgments. The company said Mr. Smiley is the only employee affected by the outcome of the investigation and declined to elaborate on what it defines as inappropriate conduct.

Mr. Smiley, a company veteran who led Eli Lilly’s finance operation since January 2018, will forego a $1 million cash bonus for 2020, about $3 million of a shareholder value award, as well as current and future equity incentive compensation, totaling more than $20 million, according to the separation agreement. Mr. Smiley in his role as CFO earned an annual base salary of $900,000 and received total compensation of $7.3 million in 2019, the most recent year for which data is available.

Anat Ashkenazi, the new CFO of Eli Lilly.

Photo: Eli Lilly & Co

He is entitled to reduced cash compensation of $9,000 every two weeks through July 2021 to help with the transition to his successor Anat Ashkenazi, who most recently led the finances of Lilly Research Laboratories.

The loss of bonuses and other incentive compensation is expected in cases such as this one, said Robin Ferracone, chief executive of Farient Advisors LLC, a compensation consulting firm.

“There is a lot that is entrusted to the CFO,” Ms. Ferracone said, pointing toward duties such as signing off on financial statements. “One expects an officer like that to live up to the highest codes of conduct,” she said.

Eli Lilly in recent years has been strengthening its corporate rulebook. The company has had an executive compensation recovery policy in place since at least 2007, according to proxy statements. In 2013, Eli Lilly broadened its definition of events allowing it to claw back funds by removing the requirement for a financial restatement. Misconduct by senior managers that violates the law or a company policy and causes significant harm to the business allows for the recovery of money, its proxy statement showed.

More than half of the 100 largest U.S. companies in 2020 had a policy allowing clawbacks in cases of fraud or misconduct, according to a survey published in September by Shearman & Sterling LLP, a law firm.

McDonald’s Corp. is one of the most prominent companies in recent years to try to force a former executive to pay back compensation. The burger chain and former Chief Executive Steve Easterbrook are fighting in court over the firm’s efforts to recover roughly $57 million in severance pay from the executive, who stepped down after an inquiry into sexual relationships with employees.

General Electric Co. in December decided not to try to claw back pay from former CEO Jeff Immelt and other executives over accounting and other issues.

Colm Callan, the former CFO of WageWorks Inc., earlier this month settled claims by the Securities and Exchange Commission that he and the company’s former CEO, Joseph Jackson, misled accountants and auditors, resulting in a restatement in April 2018. Mr. Callan was ordered to pay a penalty of $100,000 and to hand back over $150,000 in executive compensation.

Growing societal awareness around inappropriate behavior in recent years, accelerated by the #MeToo movement, is forcing companies to be more transparent in cases of executive misconduct, said Alan Johnson, managing director at Johnson Associates Inc., a compensation consulting firm. “Historically, companies either did nothing or allowed people to leave quietly,” Mr. Johnson said. “That appears no longer possible,” he said.

Compensation advisers expect more executives to lose all or part of their compensation in cases of inappropriate behavior, Ms. Ferracone said. “The tone at the top is extremely important. Companies have to show that they are walking the talk,” she said.

Eli Lilly said it has a robust code of conduct and seeks to enhance its policies around behavior in the workplace. It declined to provide more details.

New CFO Ms. Ashkenazi, also a longtime employee, is entitled to a base salary of $900,000 and an annual bonus of $900,000, Eli Lilly said in a filing with securities regulators.

Mr. Smiley didn’t immediately respond to a request for comment.

Write to Nina Trentmann at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

This post first appeared on wsj.com

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