Fred Hassan, Schering's $30 Million Man
Schering-Plough has had a fairly miserable year so far, thanks to its apparent efforts to keep bad scientific news about the cholesterol pill Vytorin out of the public eye. CEO Fred Hassan, however, is still living off last year's glory -- even if it might well have been far less glorious had Schering and its partner Merck published that Vytorin study promptly.
As it stands, though, Hassan pulled in an astonishing $30 million in 2007 compensation, according to Schering's just-released proxy statement. That includes his $1.7 million salary, stock awards worth $13.5 million, $9 million in options awards, and a $4 million cash bonus. Oh, there's also the $75,000 for use of the corporate jet, $146,680 for "personal security services, and a $292,250 corporate contribution to Hassan's executive savings plans.
All in all, Hassan's compensation rose 2.2 percent over the previous year's level of $29.7 million. That puts him pretty much in the same ballpark as Johnson & Johnson CEO William Weldon, who had a much better year and earned $31.9 million in 2007, and well ahead of his Vytorin cohort, Merck CEO Richard Clark, who pulled in only (!!) $19.9 million, or a full third less than Hassan. And the Schering chief received three times the $9.5 million salary paid to Pfizer head Jeffrey Kindler.
To be sure, Hassan could still forfeit about $8.7 million of his 2007 stock awards if he doesn't meet various "performance conditions." And Schering sounds just a bit defensive about Hassan's giant paycheck, taking the unusual step of including in its proxy a "special note about 2008" that's the closest thing to an official apology for overpaid executives that I've ever seen:
In the pharmaceutical industry today, media firestorms about complex drug safety and efficacy concerns are frequent and intense. Often, these events impact stock price. Sometimes these events also impact prescriber and patient preferences, which can impact future sales. These impacts frequently occur whether or not there is medical and scientific support for the concerns publicized in the media.Meanwhile, Hassan is also getting some positive PR by finally buying $2 million worth of Schering stock, as he'd promised to do back in January. Of course, the share price is down about 14 percent since Hassan made his pledge, so that'll yield him a nice profit if the stock turns around. Plus, as the Shearlings Got Plowed blog notes, Hassan is essentially buying shares with half of his unearned $4 million cash bonus, so he's sort of playing with house money here.[...]
Schering-Plough is currently facing such a challenge, which began in early 2008 relating to a Merck/Schering-Plough cholesterol joint venture clinical trial, called ENHANCE. That clinical trial included the drug VYTORIN and was initiated (and designed earlier) by the Merck/Schering-Plough cholesterol joint venture in 2002, before Hassan and the new management team joined Schering-Plough. Details of the matter are discussed in Schering-Plough's 2007 10-K which was filed with the SEC on February 29, 2008. This challenge has pressured the stock price, which has dropped since year end.
The pay-for-performance elements of Schering-Plough's executive compensation program have been designed to closely link the interests of senior management with that of the shareholders and the creation of shareholder value. Even in the current situation, where the Board believes management has handled the challenge well, because the stock price has declined, the named executives have lost significant net worth, and potential future compensation for each of them is at risk.
[...]
The Compensation Committee, the Board and the management of Schering-Plough (including Hassan and the other named executives) take pride in the performance-based compensation system, and they remain committed to maintaining the integrity of the system in good times and bad. Accordingly, should the current (or future) challenges result in lagging performance in 2008, as measured by the applicable sales, earnings and actual and relative total shareholder return metrics, then compensation to executives in 2008 will be significantly reduced from the compensation reported in this proxy statement, which relates to performance periods where performance - measured by those same metrics of sales, earnings and actual and relative total shareholder return - was strong.
