What the Pfizer (III)? - Enormous Pay for Poor Performance

The recent in-depth investigation by Fortune reporters of 10 years of dysfunctional leadership at Pfizer, the "world's largest research-based pharmaceutical company," raises many issues about leadership and governance in health care (see our post here).  To continue what is likely to become a lengthy series, let us now discuss the discrepancy between the markedly dysfunctional leadership performance documented in the Fortune article and the pay given to the leaders involved.

"Hank" McKinnell et al - 2003-2006

Mr McKinell was forced to retire in 2006. The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.

The 2006 Pfizer proxy statement reported the total compensation received by Mr McKinnell from 2003-2005.
2003 - $10,706,002
2004 - $11,355,317
2005 - $12,767,270
Each line reflects the combination of salary, bonus, other annual compensation, restricted stock awards, securities underly  options, LTIP payouts, and all other compensation. 
 
The four other best paid executives were Karen Katen, Vice Chairman and President, Prizer Human Health,  David Shedlarz, Vice Chairman, Jeffrey B Kindler, Vice Chairman and General Counsel, and John LaMattina PhD, Senior Vice President, President, Pfizer Global Research and Development.  Their total compensation for these years were
Ms Katen
2003 -  $4,747,478
2004 -  $8,541,220
2005 - $6,663,283
Mr Shedlarz
2003 - $3,722,508
2004 - $6,743,591
2005 - $3,897,293
Mr Kindler
2003 - $3,113,308
2004 - $4,181,817
2005 - $3,338,728
Mr LaMattina
2003 - $2,228,804
2004 - $4,410,130
2005 - $3,558,415

Despite MrMcKinnell's poor performance, he never received less than $10 million a year in the three years before he was forced out.  Other top managers, despite never effectively compensating for Mr McKinnell's bad performance earned at least $ 3 million a year in these three years, with one exception, one manager who only made a bit over $2 million in one of the three years.

Jeffrey Kindler et al 2007 - 2010 

Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.

The 2010 Pfizer proxy statement revealed the total compensation received by Mr Kindler from 2007-2009.
2007 - $13,075,099
2008 - $15,547,600
2009 - $14,898,038
In this proxy statement, each line included salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and non-qualified deferred compensation earnings, and all other compensation. 

The four other best paid executives were F D'Amelio, Chief Financial Officer, I Read, Group President, Worldwide Biopharmaceutical Business, M Mackay, President, Pharmatherapeutics Research & Development, and Dr F Lewis-Hall, Chief Medical Officer.  Their total compensation for these years was:
Mr F'Amelio
2007 - $12,338,821
2008 - $6,979,111
2009 - $7,858,969
Mr Read
2007 - $4,560,869
2008 - $7,629,185
2009 - $9,447,036
Mr Mackay
2007 - $3,590,158
2008 - $6,718,580
2009 - $5,878,806
Dr Lewis-Hall
2009 - $5,087,263 (hired in 2009)

Despite Mr Kindler's poor performance, he never received less than $13 million a year in the three years before he was forced out.  Other top managers, despite never effectively compensating for Mr McKinnell's bad performance earned at least $ 4.5 million a year in these three years, with one exception, one manager who only made a bit over $3.5 million in one of the three years.


Summary
 
The business oriented leaders of health care, and some of their sympathizers in health care and policy research are given to preach that "pay for performance," (P4P) applied to health care professionals is a solution to the problem of ever rising health care costs, and ever declining health care access and quality. 
 
Pay for performance applied to the top hired leaders of health care organizations has become a cruel joke.     The Pfizer example shows a company with chronically bad leadership paid hundreds of times what average workers receive.  Despite a parched drug pipeline and languishing stock price, top managers made millions a year, and CEOs who would eventually be forced out for poor performance made tens of millions a year.  One cannot help but conclude that the main goal of Pfizer was to enrich its top managers.  Managers whose main goal is to enrich themselves, of course, are unlikely to manage well, and unlikely to promote development and manufacturing of drugs whose benefits exceed their harms, and which decrease symptoms, improve function, prevent morbidity, extend life, and generally benefit health.   
 
Now that the scope of the failings of Pfizer's hired leaders has been made clearer, the company has become one of the best, or worst examples of self-interested leadership and its perils for health care. 
 
As I have repeated endlessly,... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.
 
If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.