Pfizer Inc.
Summary:
All in all, the executive comp. program for Pfizer doesn't award execs excessively during a down period, but it could be better. We would award them a low B or high C, but the grade was knocked down for the poor termination and change in control clauses. Shareholders shouldn't have to sit back and watch the company go downhill just because it's too expensive to get rid of the people in charge. Job security anyone?
Analysis:
The drug industry can be a frustrating business to be in. Companies spend many years and millions of dollars developing new drugs, only to have other companies come in a few years down the road and make all the money with cheaper, generic versions. Sure, they make a lot of money before their drug patents run out, but it can be difficult to constantly release the "Next Big Thing".
The industry is now facing a situation where many patents are starting to run out, and not enough drugs are in the development pipeline to make up for those upcoming losses. Pfizer, one of the biggest companies, is facing those same problems. Almost half of their drug patents are scheduled to expire by 2011. With no major breakthroughs on the foreseeable horizon, Pfizer must scramble to find a way to replace all of that revenue. It should come from cost-cutting efforts and increased spending on R&D. Our analysis shows that Pfizer may also need to focus on cost-cutting efforts in the executive compensation program.
So… What Are They Paid?
The base salary compensation for the CEO is pretty normal ($1.5 million), but the average pay for the NEOs is a little higher than usual ($900,000). Bonuses were about average, but should they still be receiving them when the stock price has consistently fallen for almost a decade?
A piece of good news is that the managers didn't profit a whole lot from stock and option awards. The CEO received a little over $1 million in stock awards and almost $3 million in option awards, whereas the NEOs' averages were even lower. The problem is that these numbers were down a very significant amount from the prior year. Case in point – NEO Shedlarz went from being awarded $3.2 million in stock awards during the 2006 period to a measly $62,000 in 2007. Since the stock's performance was also poor the year before, the low numbers seem attributable to the high amount of turnover experienced in the upper ranks.
Perquisites were above average. Although not the highest we've seen, not exactly the lowest either. The CEO and Mr. Shedlarz received some money for car allowances. They also, along with the rest of the NEOs, were allowed to use the corporate jets for personal use, the CEO tallying $174,000 in incremental costs. We were also alarmed by the huge increase in pension value for Mr. Shedllarz. It rose by over $13 million in 2007.
Finally, we have the termination and change in control clauses. These are particularly bad since the Committee holds discretion over how much an NEO or the CEO receives if let go. The change in control clause has more specific numbers, but they don't look very good. In this scenario, the CEO would receive a total of approximately $50 million. A lot of it coming from a generous severance payment of $14.3 million, a "pension enhancement" of $7.8 million, and a tax gross up of $16.6 million.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,462,500 | $900,050 |
| Bonus | $3,100,000 | $777,863 |
| Stock | $1,162,835 | $134,209 |
| Options | $2,868,866 | $1,805,957 |
| non-Equity Incentives | $0 | $0 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report