Tuesday, April 10, 2012

There They Go Again - Pfizer CEO Compensation Triples, Ordinary Employees' Severance Cut

In mid-March, Pfizer, which used to proclaim itself to be the world's largest research-based pharmaceutical company, announced in a regulatory filing a huge increase in total compensation for its relatively new CEO.  Per the AP, via the Wall Street Journal:
Pfizer Inc. nearly tripled CEO Ian Read's compensation in 2011, his first full year as top executive of the world's largest drugmaker, which has been cutting costs and making other moves to compensate for generic competition hurting sales of top medicines.

Read, 58, received compensation worth a total of $18.12 million in 2011, up from $6.42 million in 2010, according to an Associated Press analysis of a regulatory filing Thursday by the maker of Viagra and cholesterol fighter Lipitor.

The total includes a salary of $1.7 million, up 42 percent, stock awards and option awards totaling about $12.5 million, a $3.5 million incentive award and about $319,000 in other compensation. The last category ranges from use of company aircraft and a car and driver to contributions to Read's retirement savings.

Contrast: Decreasing Research and Development Spending, Facilities, Employment

Mr Read seems to have been rewarded for decreasing the scope of research and cutting research spending:
Over the past year, Read has narrowed the focus of Pfizer's huge research operations to diseases with big sales potential or few existing treatment options, trimming the research budget significantly in the process.

Reuters noted that involved sweeping layoffs and the closure of multiple research facilities:
Pfizer said it had improved its performance during 2011 by reducing research spending by nearly $1 billion. That feat came, however, at the expense of thousands of Pfizer researchers, whose jobs are being eliminated along with numerous laboratories in an effort to ultimately slash Pfizer research spending by up to $2 billion a year.

Contrast: Long-Term Shareholder Value

Read traded research capacity, and presumably the long-term value of the company, for an immediate boost in the stock price,
Pfizer, under Read, has narrowed its focus to five main therapeutic areas and is considering either selling or spinning off its nutritional products and animal health units.

Proceeds from the transactions will likely be used to buy back company shares, Read has said, delighting investors and helping boost company shares almost 27 percent in the past twelve months.

On the other hand, a quick look at Google Finance reveals that while the stock price is higher than it has been since 2009, it is roughly half of what it was from the late 1990s until 2004.

On its web-site, the company still proclaims, however,
we at Pfizer are committed to applying science and our global resources to improve health and well-being at every stage of life.

Contrast: Treatment of Other Employees

Note that Mr Read is an employee of Pfizer, albeit its most highly paid employee by a huge margin.

Other employees are not being treated so well. The massive increase in CEO compensation should also be contrasted with the company's new severance policies, as explained in an article from last week in The (New London, CT) Day,
Pfizer Inc. personnel being laid off at the company's Groton laboratories after May 14 will receive less money than previous waves of departing workers have received.

Pfizer, at the tail end of a planned 1,100 layoffs locally, said in a memo released last week that in the future people leaving the company will receive eight weeks of severance in addition to two weeks for every year served with the company. The pharmaceutical giant had previously offered at least 12 weeks of severance to employees, and before acquiring Wyeth Pharmaceuticals in 2009 had handed out three weeks of pay for every year served.


While Pfizer recently has made an amazing series of ethical missteps (look here), a decreasing drug pipeline, lost half of its stock price since its peak, and decreased its ability to develop new products, it has quickly returned to its previous ways of making its top hired executives very rich. (No matter, by the way, that Mr Read ought to bear some responsibility for the company's previous problems, since as the AP pointed out, he "has spent his entire career at the New York-based drugmaker, became Pfizer's CEO in December 2010 after running its worldwide pharmaceutical business since 2006.")

This is just the latest of many, many examples of how top hired executives of health care organizations are not like you and me. Whatever is happening to their organization, whatever its faithfulness to its mission, its performance, its value, its treatment of employees in general, many CEOs just get to take more and more off the top. Given this perverse incentive structure, is there really any question why most health care organizations do not always seem to put patients' or the public's health, or health care professionals' values, or their employees' welfare, or even their owners' financial interests (when they are publicly held for-profit corporations) first?  Or why health care costs steadily increase while quality and access decrease?
Repeat after me - we will never solve the problem of health care dysfunction until we assure that the leaders of health care organizations are well-informed about the context of health care, uphold health care professionals' values, put patients' and the public's health first, are accountable and transparent, and receive reasonable incentives based on all the above.

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