Pay for Non-Performance: At Sequenom, Execs Got Bonuses for Resigning or Doing Nothing
Sequenom (SQNM) scrambled to pay its new CEO in September 2009 when its former chief and two other top executives were ousted from the company in a data-corruption/insider trading scandal. A taste of that drama is offered in its latest proxy filing.
The disclosure is also another example of pharmaceutical executives getting paid to do nothing, as the CFO was given a bonus for losing his job, and the new CEO and R&D chief were given automatic bonuses and generous stock option packages within weeks of moving into their new offices.
Normally, pharmaceutical company proxies -- the annual SEC disclosure describing management compensation -- are yawn-fests, filled with recitations of a company's compensation policies and mind-numbing tables valuing stock, options and retirement benefits. The table summarizing CEO pay is usually the highlight; people want to see if his or her total compensation rose or fell.
But because Sequenom imploded midyear, amid investigations by the FBI and lawsuits from partners and shareholders, its proxy describes pay arrangements for both the executives who were asked to leave and the new ones that replaced them.
Setting those arrangements wasn't simple, as the new CEO, Harry Hixson Jr., and the new svp/R&D, Ronald Lindsay, were both board members who sat on the compensation committee -- so that panel had to be reconstituted to set new pay levels.
The company initially dispensed with the complications by giving Hixson and Lindsay salaries $475,000 and $325,000, respectively, and guaranteed bonuses for the year:
For 2009 only, Dr. Hixson was assured of receiving a prorated bonus of $62,074, which was paid after year end.The proxy doesn't explain why it was called a "bonus" if it was guaranteed, or why Hixson and Lindsay would feel compelled to perform if they didn't need to do anything to get it.... For 2009 only, Dr. Lindsay was assured of receiving a prorated bonus of $21,234, which was paid after year end.
The pair also got a bunch of options at the same price as the stock -- meaning the stock had to rise only by a penny for them to go into the money, the proxy says:
Dr. Hixson was granted two stock options for a total of 375,000 shares, each at an exercise price per share equal to $3.39, which was the fair market value of our common stock on the date of grant.
Dr. Lindsay was granted an option to purchase 150,000 shares, at an exercise price equal to $3.39 per share.The grant occurred while the company was in its darkest hour and the stock was at an all-time low. While the stock was not guaranteed to go up, it had nowhere else to go. The stock has since almost doubled in price.
Even though Hixson worked only four months as CEO in 2009, he received more than his predecessor, Harry Stylli, who left in September. Here's the summary of their total compensation:
- Current CEO Harry Hixson Jr. $2 million
- Former CEO Harry Stylli $1.9 million
- Former CFO Paul Harwan $1.2 million
Under the agreement Mr. Harwan was eligible for an annual cash bonus of up to 30% of his annual base salary.Related:
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- Sequenom's Disappearing Down Syndrome Test Mystery -- Solved!