Valeant Executive Pay Doubles to $19.7 Million Despite Quadrupling of Company's Losses

Valeant Pharmaceuticals saw its revenues decline, its net loss quadruple, and its cash sink by $109 million in 2008. But the compensation of its top executives doubled, to $19.7 million in 2008 from $8.6 million in 2007.

Half of that, $9.7 million, went to CEO J. Michael Pearson (pictured). The previous year the CEO was given just $4 million in total compensation.

The jolting disconnect between the state of Valeant as a business and the state of its management's buliging wallets was described in the company's proxy filing with the SEC. Put simply, the execs' pay isn't linked to the company's income, it's linked to the stock price, and that almost doubled last year from $11.98 to $22.90. Here's a breakdown of who got what:

Name, 2008 pay, 2007 pay
CEO J. Michael Pearson, $9,767,394, NA
CFO Peter J. Blott, $1,137,057, $695,625
EVP/admin Elisa Karlson, $1,607,821 , NA
General counsel Steve T. Min, $1,097,861, NA
ex-CEO Timothy C. Tyson, $3,927,553, $3,839,978
ex-president Charles J. Bramlage, $1,083,077, $1,145,005
ex-general counsel Eileen C. Pruette, 1,051,208, 1,061,584
Source: SEC. The 2007 numbers don't add up to $9.7 million because executives listed on the 2007 proxy are missing from the 2008 proxy. Numbers reflect the value of stock and options that may not be vested and whose value changes over time.

During the year under Pearson et al, Valeant's revenue declined from $603 million to $593 million. The company made a net loss of $24 million, roughly four times its net loss in 2007, at $6 million. And the cashflow statement recorded a decrease of $109 million on hand. It also got into a legal fight with Eli Lilly over whether it's paying its bills or not.

Valeant also laid off 392 people at a cost of $19 million, and six of its top 12 products are in decline. You can read a nice summary of this messy company -- its $600 million in revenue comes from a staggering 389 products -- over at Motley Fool. Note that the company is too poor to afford stage 3 trials for its Hep C vaccine.

The difference in compensation is also interesting because it essentially represents a pay raise for a set of managers who only just started their jobs. Pearson came on board in February 2008, and he recruited Karlson in April and Min in June. This year, he added Rajiv De Silva as COO/specialty pharma in January and Bhaskar Chaudhuri as president in March.

Notice that Min worked half a year but got paid the same compensation that it took his predecessor a full year to earn, according to the historical information in the proxy.

Here's how the company explained this jackpot for the newly arrived:

In hiring these new executive officers, the Compensation Committee of the Board of Directors (for this section, the "Committee") approved compensation packages that closely align the financial reward to executive officers with long-term return to shareholders. The Committee then implemented modified compensation programs for existing executives to more closely align with those of the new executives. In all cases, the Committee was guided by the following guiding principles:
Total compensation should be heavily tied to performance, as defined by total shareholder return ("TSR").
... In 2008, our TSR, as measured by the closing share price of our common stock from January 1 through December 31, 2008, was 91%, reflecting an increase in our share price from $11.98 to $22.90, and our total market capitalization increased from $1.07 billion to $1.87 billion.

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