Friday, April 01, 2005

Thoughts on the Merck CEO Getting a "Performance" Bonus

Regarding the post below by Roy Poses: as former Director of Published Information Resources (running Merck Research Labs' science libraries) and Director of The Merck Index of Chemicals, Drugs and Biologicals, an encyclopedia of medicinal chemistry dating to 1889, I was laid off from the company as part of a group of approximately 4,400 in late 2003. While I cannot comment on many of the issues, and have no direct knowledge of events there since my layoff, I can speculate that the CEO performance objectives that led to the noted rewards likely had much to do with "lowering the cost structure" (management jargon for cost cutting).

From Gilmartin's statement at :
Merck is fundamentally lowering its cost structure and improving the efficiency of its operations through numerous actions. For example, Merck is lowering its cost structure by 2005 as much as $300 million annually by reducing 4,400 positions from its worldwide workforce. To date, 3,800 positions have been eliminated. In addition, the company expects to free up as much as $600 million in additional cash flow through 2006 through a series of efficiencies in its operations and capital investment activities.

Recent news reports said that the layoffs have now exceeded 5,100:

Pharmaceutical maker Merck, on the heels of the recall of its flagship drug Vioxx, announced that it will cut about 5,100 jobs by the end of 2004, and will cut its costs by $2.4 billion over the next four years. In October 2003, Merck had said that as part of a restructuring, it would cut approximately 4,400 jobs. The company has thus announced 700 more employee cuts than originally planned. Merck projects savings of $300 million on payroll and benefits in 2005 as a result of the cuts. The company also plans to save $1.2 billion from procurement changes, $300 million from inventory reduction, and $600 million from capital initiatives by 2008
Whether a reward for this is appropriate or not, I can also add that in my opinion, creativity in high-risk, information-intensive biomedical research of any kind, and aggressive cost-cutting measures keyed to pleasing Wall Street and large institutional stockholders , are generally incompatible.

For example, even in the public sector, when the NIH budget is cut, or not raised enough, statements like this follow:

The AAMC estimates that once all factors are taken into account, the new NIH budget will be about 3.1% more than it was last year. With inflation, that is not even really an increase, said Stacie Pabst, PhD, director of science policy for Research America, a public education and advocacy nonprofit organization in Alexandria, Va. "It's a major problem for people doing research," she said.

and this :

... the pending Senate budget resolution could force as much as a $2.5 billion cut in current NIH funding and that level would be frozen until the Year 2002. If the proposed cuts are permitted to take place, it would damage NIH research at a time of unprecedented productivity, drive talented scientists, both young and established, into other careers, and cause the lose its hard-won leadership in such fields as biotechnology and pharmaceuticals.
-- SS

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