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Genzyme CEO Earns $300M for Running Company into the Ground

Here's how crazy CEO incentive compensation is: Genzyme (GENZ) CEO Henri Termeer walked away from his company with a payout that may be worth $300 million yesterday when Sanofi-Aventis (SNY) acquired his company. But the only reason Genzyme was acquired -- triggering Termeer's gargantuan change-of-control package -- is because Termeer nearly ran his company into the ground, making his stock cheap enough for Sanofi to buy.

In other words, failure = success when it comes to change-of-control packages for CEOs. Here's how the scheme worked:

Before Sanofi became interested in Genzyme, Termeer presided over a 14-year history of screw ups including warning letters from the FDA, failed factory inspections, and selling drugs contaminated with bits of rubber and metal. Ultimately, Genzyme's Allston, Mass., site became infected with Vesivirus 2117, crippling its production. Termeer's "performance" resulted in the loss of its monopolies on two drugs.

In the first nine months of 2009 Genzyme made a profit of $400 million. A year later, the company had a loss of $50 million. In 2008, Genzyme stock reached a high of $83.06. Before Sanofi showed up, the stock was a mere $47.75. That lousy performance made GENZ cheap enough to buy at $74 -- lower than the stock's price just three years ago. Genzyme was one of my Five Worst Drug Companies of 2009.

Meanwhile, Genzyme's board larded Termeer's compensation package with incentives to sell the company. In 2009, Termeer was due a $22 million cash payout in the event the company was sold. On top of that, Termeer's various stock and options vest instantly, and, of course, the cheap stock that he earned in years gone by is now expensive stock that Sanofi is paying him for.

To put that simply, Termeer's compensation was arranged in such a way that the worse he performed, the more likely his company would be bought, and the richer he became.

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Image by Flickr user Robert Scoble, CC.
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