PFIZER'S MCKINNELL TO GET $180 MILLION RETIREMENT PACKAGE

Yahoo Finance ^ | 21 December 2006 | Ellen Simon

[MeneMeneTekelUpharsin]

NEW YORK (AP) -- Pfizer Inc.'s former chief executive, Henry A. McKinnell, who was forced into an early retirement in part because of investor anger about his rich retirement benefits, will get every penny of it and more, a new regulatory filing shows. McKinnell's package, which the company disclosed in a filing with the Securities and Exchange Commission Thursday, totals more than $180 million. It includes an estimated $82.3 million in pension benefits, $77.9 million in deferred compensation, and cash and stock totaling more than $20.7 million.

The total value could grow to almost $200 million if McKinnell gets a $18.3 million stock award, but that is contingent on the future performance of the stock of the world's largest drugmaker. The company said McKinnell's departure "contractually obligated" it under his employment agreement to provide McKinnell with certain severance payments and benefits.

The deferred pension sum includes $67 million of his own money from prior compensation he chose to set aside, the company said in the filing. Beyond that, Pfizer will pay a lump sum severance of $11.9 million and will fully vest stock grants worth $5.8 million, according to the filing. He also will receive $2.2 million for 2005 bonus payments, $305,644 for unused vacation time and $576,573 for benefits he would have received had he stayed at the drugmaker. The package also provides him with an annual pension of $6.6 million until he dies. Pfizer estimated the pension's lump-sum value to be $82.3 million. McKinnell vacated the CEO spot in July, 19 months before he was scheduled to step down, under pressure from investors angered about his retirement package and a drop of as much as 40 percent in the company's stock price during his five years in charge.

For some investors, already angry over the stock's slide, McKinnell's retirement package was a flash point. At Pfizer's April annual meeting in Lincoln, Neb., a plane flew overhead trailing a banner that said, "Give it back, Hank!" Two proxy advisory companies had called for removal of board members and the AFL-CIO led a protest against the retirement package. The board members were re-elected, however. McKinnell earned $5.97 million in salary and bonus in 2005. When the company's proxy was filed with the Securities and Exchange Commission in March, his total compensation for the year was valued at $15.88 million, including salary, bonus, stock options, stock grants and benefits. The value of options and stock varies with the share price.

McKinnell's perquisites in 2005 included $8,500 in financial counseling, $65,120 for use of a car and driver and $43,855 for personal use of company aircraft, according to the proxy. New Chief Executive Jeffrey B. Kindler also became chairman Tuesday, replacing McKinnell, who was not slated to leave until February. Pfizer declined to make McKinnell available Thursday, and a spokesman emphasized the differences between McKinnell's pay package and Kindler's. Kindler has no contract, has a much lower annual salary than McKinnell and has more pay tied to the stock's performance, according to spokesman Paul Fitzhenry.

Those differences may not be enough to quench shareholder's anger. "It's a very big package and I'm sure it's going to raise investor concerns, however, it's contractual," said Charles Elson, chair of the Weinberg Center for Corporate Governance at the University of Delaware. "The question is not that they've paid it, but why, initially, such a contract was entered into." The company, which has pledged to cut $4 billion in costs by 2008, is expected to undergo a radical shake up. Pfizer said in late November that it would look for even deeper cuts. Then it suddenly halted development of cholesterol drug torcetrapib because of safety concerns. The company had spent $800 million developing torcetrapib and hoped it would be a blockbuster. Pfizer shares fell 14 cents to $26.07 Thursday on the New York Stock Exchange.

[MeneMeneTekelUpharsin]

Wow. How do those fellas do that? I work like a dog while putting up with a large number of disrespectful, hateful teenagers for almost half of what they give this gentelman just for his car!!!!!!! This guy, what did he do to make the company pay him that much? Oh man...I am out of breath, standing up in my chair and stomping the keyboard with my feet! We're going to end up with a "Hugo Chavez" here appealing to the poor to rise up and revolt over such as that.

[AZRepublican]

No wonder drug prices are soooooooo $$$$$$.

[MeneMeneTekelUpharsin]

No wonder drug prices are soooooooo $$$$$$.

I am not proposing any government intervention, but can't SOMEONE at the company prevent this type of distortion of reality from occurring?

[Old_Mil]

If corporate boards were actually governing bodies of any sort, then this sort of thing wouldn't happen. Instead they've turned into an old boys' network where backs are reciprocally rubbed and everyone looks the other way. If the investor's best interests aren't being looked out for, why would one presume that the interests of consumers or workers would?

[cpdiii]

If corporate boards were actually governing bodies of any sort, then this sort of thing wouldn't happen. Instead they've turned into an old boys' network where backs are reciprocally rubbed and everyone looks the other way. If the investor's best interests aren't being looked out for, why would one presume that the interests of consumers or workers would?

Capitalism is good. This is not capitalism but cronyism. In effect the cronies on the board of directors are looting the profits of the company and in effect screwing the shareholders. Unfortunately in many of the major companies this is common and not the exception. These actions will eventually disgust the public and shareholders and will be replaced with something even worse,GOVERNMENT CONTROL>

[Ecliptic]

If we start limiting what someone can make, it will trickle down and whatever any of you are making now will go down as well.....we can do without socialism...

Whatever any of you are making is probably much more than the clerk at Wal-Mart or the janitor in my building....

So, you should cut your pay to be in line with those who make less than you....

It's all relative....why not get a better education or work for a multinational company, and move up the ladder a be a wonderful manager?

[freepersup]

Puts him on par with pro athletes (salaries.) Granted, it's a retirement vs wages for the athletes. The overall payout figures are comparable.

[Rembrandt]

I assume that Ellen, the author, is an anti-capitalist.

If (big If) the facts are as stated and one deducts the detailed sums noted, it appears that the retiring Exec only got about 12 million as a retirement pkg. Most of the rest was earned from his time serving (pension) or deferred from prior years.

Now, if one hates capitalism, one will try and agglommerate all possible sums to make a really, really big number, in an effort to incite a riot. Pretty juvenile way to present an argument, IMHO.

[nwrep]

What a bunch of class-envy freepers here!! They should just go back and reread Capitalism.

[perfect stranger]

bttt

[RunningWolf]

The investors elected the board of directors and the board approved his package.

I agree with you though on the apparent injustice of it all. I think that a few of these people return good payoffs for the investments in them. But many are okay people who make the image, fill the bill, and fit the mold.

Others are chameleons, people with a sense of entitlement and ownership, and are willing to be ruthless deceitful and unscrupulous toward achieving their climb.

I have seen it all.

[Old_Mil]

Nobody has talked about having the government limiting what an executive can make. The question is whether cronyism in upper management is diverting returns that should rightly be going to elsewhere into executive compensation packages.

[oceanview]

this is why its politically impossible to be against a minimum wage increase. people like this aren't "building" great american companies - they are looting them.

[bpjam]

He oversaw VIAGRA hitting the market. Arguably, he is underpaid. I wouldn't make that argument but it is an argument which could be made.

The part I don't get is why so many people think that whatever this tool makes has anything to do with what the janitor gets paid or what the minimum wage should be. Its not like anybody else in the entire country would make a dime more if they guy got $1M instead of $180M.

I thought this was a country where people wanted to become rich instead of just hating others for getting there? If anybody else became the CEO of one of the countries larger pharma companies and created and rolled out a $15B drug, I'm pretty sure you wouldn't turn down the $180M they offered you since you drove the stock price up by somewhere around ten to twenty billion in market cap.

[MaxMax]

Too much envy going around.

[bpjam]

You are correct. Corrupt practices are capitalism but cronyism. But when this CEO signed on for the job, they promised to pay him whatever it is that he is getting now. And the stock has had a very nice run in the last 5-10 years despite a current slide.

Personally, I'm not sure why the institutional shareholders like CALPERS and other bigboys aren't putting their own people on the boards so they can improve their returns by limiting excessive compensation like this.

[BnBlFlag]

Damn! No wonder the stock sucks.

[the808bass]

No, the stock sucks because Zoloft and Z-Pak lost patent, Lipitor's is not far behind (not to mention the generic competition from Merck's molecule) and torcetrapib got axed before it got out of the gate.

[MeneMeneTekelUpharsin]

It's all relative....why not get a better education or work for a multinational company, and move up the ladder a be a wonderful manager?

Many people are FAR more well-educated than that chap. And, wonderful managers seldom MAKE IT TO THE TOP! Arrrgh!!! We are all entitled to our opinions. The poster who indicated that this is cronyism pretty well nailed it. This has nothing to do with rightful earnings for services rendered, education or other worthy reasons -- this can NOT be justified on the basis of those arguments. I'm telling you and everyone else and you can read and understand or reject (you have that right): If much more of this occurs, we're going to see major sociopolitical turmoil result. Now, right that down and see if it does or doesn't come true.

[MeneMeneTekelUpharsin]

Nobody has talked about having the government limiting what an executive can make. The question is whether cronyism in upper management is diverting returns that should rightly be going to elsewhere into executive compensation packages.

Yes sir.

[dakine]

You're overpaid...See, my opinion about someone elses paycheck means nothing...

[MeneMeneTekelUpharsin]

You're overpaid

You're right. And I make up for it by working extensive overtime for free to do my job right -- literally.

[dakine]

I make up for it by working extensive overtime for free

It is not free...if it was free, you could/would stop yesterday...

[Puddleglum]

What a bunch of class-envy freepers here!!

Oh shudder - class envy! I don't think it's envy. I think it's shock at what appears to be an excessive amount of money. Is it excessive? Probably. Is it market-controlled? If so, the market is broken. Good old boy cronyism and back-scratching, I suspect.

We don't live in a lasisse-faire economy and this is one indicator.

[Puddleglum]

He oversaw VIAGRA hitting the market.

The real trick was getting Viagra to be covered under most folks' insurance plans - added to the formulary. Grandpa not getting excited enough is a medical crisis now, and that helps the pill maker out immensely. I'm sure it was a market decision.

[tom paine 2]

This money rightly belongs to the shareholders. Hank mckinnel did not do anything of note except preside over a cash cow enrihed by Viagra and Lipitor.

[Hot Tabasco]

If much more of this occurs, we're going to see major sociopolitical turmoil result. Now, right that down and see if it does or doesn't come true.

I agree with you. I just got canned on 12/1 by a shoot from the hip vindictive VP of HR after almost 35 years of employment. I was at leasted afforded the mandatory severence package of 4 months salary but that allowed them to successfully deny me the additional 8 months of partial salary had they kept me on a few days longer and laid me off as was the original intent.

I have absolutely no legal recourse as Michigan is an "At Will" state........

At age 56 its going to be rather difficult to find comparable employment here in S.e. Michigan. So if I happen to post some rather negative comments about individuals such as this Pfizer guy, rest assured, it ain't about class envy.......

[palmer]

He put 35 years of his life into that work, 11-12 hours a day, business savvy, and a strong moral code.

[palmer]

people like this aren't "building" great american companies - they are looting them.

That's completely incorrect.

[Honorary Serb]

Under McKinnell, Pfizer swallowed up two great companies--Warner-Lambert and Pharmacia. Most of Pfizer's best selling drugs (all except for Viagra) came from those two companies, especially Pfizer's largest selling drug, Warner-Lambert's Lipitor. Pfizer's new cancer drug, Sutent, came from a biotech company that had been acquired by Pharmacia.

In the process of its acquisitions and integrations of these companies, Pfizer laid off many hundreds of people. It also totally destroyed the R&D assets of its acquisitions, as well as that of the original Pfizer!!!! The last major drug to come out of Pfizer R&D was Viagra. What Pfizer does well is marketing, and using all its cash for acquisitions.

Pfizer just had a major late-stage drug failure, for a drug to raise "good cholesterol". Those things happen. However, Pfizer has nothing major in its pipeline to replace it, because of its wrecked R&D.

That is why Pfizer is in trouble. But McKinnell gets his big pension anyway.

[MeneMeneTekelUpharsin]

A recession is when your neighbor loses his job. A depression is when you lose yours.

[Aquinasfan]

I thought this was a country where people wanted to become rich instead of just hating others for getting there?

It's a matter of justice.

Historically, the ratio of CEO pay to the lowest wage-earner in a company has gone from 50:1 four decades ago to 821:1 today. See chart.

I don't see any simple solution, but there is a problem here that needs to be addressed.

[Old_Mil]

Another example:

ROUND ROCK, Texas (AP) - Incoming Dell Inc. vice chairman and chief financial officer Don Carty, the former American Airlines chief who left three years ago when American's parent was struggling to remain solvent, will earn $700,000 when he starts at the computer maker next month. Details of Carty's salary, approved by Dell's board of directors, were included in a regulatory filing with the Securities and Exchange Commission. By fiscal year 2008, Carty will be eligible to receive a bonus equal to 100 percent of his base salary. He also will receive a grant of 190,000 options plus another 50,000 restricted stock units

Don Carty is the former - now fired - CEO of American Airlines. He oversaw the decline of American from the highs it reached under Robert Crandall to it's post 9-11 depths. However, his firing was related to (you guessed it) mishandling the executive compensation packages of others. The man knows absolutely nothing about the computer industry...hiring an individual with such a demonstrated lack of talent certainly is not based on providing value for Dell shareholders. It's not based on his past industry experience. It may be based on where he plays golf, however.

Meanwhile, before promoting Gerard Arpey from within, American Airlines had actually considered tapping an academic - the president of the Univ of Oklahoma with no experience in the airline industry - to lead American.

[Old_Mil]

And to be fair, there is another side to this story: executives who get it. Unfortunately, this style of management seems to be in short supply today...

Costco jobs are so well compensated; the company itself has an unusually forward-looking corporate philosophy.

Costco CEO Jim Senegal has said: “We pay much better than Wal-Mart. That’s not altruism. It’s good business.”

Chief Financial Officer Richard Galanti explained: “From day one, we’ve run the company with the philosophy that if we pay better than average, provide a salary people can live on, have a positive environment and good benefits, we’ll be able to hire better people, they’ll stay longer and be more efficient.”

A 2004 Business Week study ran the numbers to test Costco’s business model against that of Wal-Mart. The study confirmed that Costco’s well-compensated employees are more productive.

The study shows that Costco’s employees sell more: $795 of sales per square foot, versus only $516 at Sam’s Club, a division of Wal-Mart (which, like Costco, operates as a members-only warehouse club). Consequently Costco pulls in more revenue per employee; U.S. operating profit per hourly employee was $13,647 at Costco versus $11,039 at Sam’s Club.

The study also revealed that Costco’s labor costs are actually lower than Wal-Mart’s as a percentage of sales. Its labor and overhead costs (classed as SG&A, or selling, general and administrative expenses) are 9.8% of revenues, compared to Wal-Mart’s 17%.

By compensating its workers well, Costco also enjoys rates of turnover far below industry norms. Costco’s rate of turnover is one-third the industry average of 65% as estimated by the National Retail Foundation. Wal-Mart reports a turnover rate of about 50%.

With such rates of employee retention, Costco’s savings are significant. “It costs $2,500 to $3,000 per worker to recruit, interview, test and train a new hire, even in retail,” said Eileen Appelbaum, Professor at Rutgers University’s School of Management and Labor Relations. “With Wal-Mart’s turnover rate that comes to an extra $1.5 to $2 million in costs each year.”

Other analysts of the retail industry agree that happier, well-compensated workers help generate bigger profits. George Whalin, president of Retail Management Consultants in San Marcos, Calif., disagrees with many of Wal-Mart’s critics, but said: “There’s no doubt Wal-Mart and many other retailers could do a better job taking care of their employees. The best retailers do take care of their employees — Nordstrom’s, Costco, The Container store — with fair pay, good benefits and managers who care about people. You have fewer employee issues, less turnover and more productivity. It lessens costs to the company.”

Still, Wall Street analysts intent on cutting up-front labor costs tend to frown upon Costco’s model. “Costco’s corporate philosophy is to put its customers first, then its employees, then its vendors and finally its shareholders. Shareholders get the short end of stick,” said Deutsche Bank analyst Bill Dreher.

But Costco’s stock has quadrupled in the past ten years, and has in the past year inched closer to Wal-Mart’s per-share-price. In fiscal year 2004, Costco recorded record sales and earnings. While Wal-Mart continues to profit and expand, its stock has lost value — in recent months it is 16% off its 52-week high — as sales have been more sluggish as gas prices cause customers to cut back on driving to and from the store. The negative publicity around the company has also caused some damage.

Of course, other factors besides low turnover and employee productivity are responsible for Costco’s efficiency. The company has a wealthier customer base than Wal-Mart’s; these customers buy higher-margin goods, purchase in bulk and have steadier spending habits. Costco also saves millions because it does not advertise.

Besides the efficiency of its workforce, another reason Costco can afford to pay more is that it cuts the fat from executive paychecks. The overall corporate philosophy is that workers deserve a fair share of the profits they help generate — not just a pat on the back or a new job title like “associate.”

For example, while CEOs at other major corporations average 531 times the pay of their lowest-paid employees, Sinegal takes only 10 times the pay of his typical employee. His annual salary is $350,000, compared to about $5.3 million awarded to Wal-Mart’s Lee Scott.

After California Costco workers ratified their Teamster contract last March, CEO Jim Sinegal said Costco workers are “entitled to buy homes and live in reasonably nice neighborhoods and send their children to school.”

That the company’s stated ideals match up with workers’ paychecks helps explain employee loyalty at Costco.

[Military family member]

I am more concerned with the $178 million tax abatement my county gave to Pfizer to build its newest factory.

[MeneMeneTekelUpharsin]

Historically, the ratio of CEO pay to the lowest wage-earner in a company has gone from 50:1 four decades ago to 821:1 today.

Great post on the statistic. It's not a matter of class envy, but one of more of an equitable situation. Oh well, you know, if people don't want to heed the warnings, they can later on read the writing on the wall.

[palmer]

You are the ones spraypainting the wall. The statistic is skewed (average instead of median, includes stock gains, etc) and does not serve a useful warning except perhaps about too much monetary liquidity causing inflated gains.

[Young Scholar]

I have no problem with successful executives making this much money. But given Pfizer's performance, I'd probably be a little upset if I were a shareholder. I suppose it really depends on whether this was part of the package he agreed to when he took the job, or some sort of "reward," which would seem totally unjustified.

[Young Scholar]

Historically, the ratio of CEO pay to the lowest wage-earner in a company has gone from 50:1 four decades ago to 821:1 today.

How is that statistic even relevant? The ratio of the average CEO's pay to the average American worker's pay might have slightly more importance, but really, it's still just a talking point for people consumed with class envy.

And what do you mean by "average CEO"? Do you count the guy who works 80 hours/week to build up the company he started 10 years ago that employs 100 people, and makes about $200,000 for it? I didn't think so. If you choose only the 500 top-paid CEOs in the country, of course the ratio is going to be high.

[Young Scholar]

Actually, I'll qualify my comment. If he shares responsibility for Viagra's success, he may well deserve this, despite Pfizer's mediocre performance more recently.

[Aquinasfan]

And what do you mean by "average CEO"?

Dunno. You'll have to ask the people who came up with the stats. But the trend seems pretty clear. It's hard to explain away an apparent 2000% increase in the ratio of CEO to lowest-paid-worker pay.

[Honorary Serb]

See my post #30, Young Scholar, for the REAL reason for your graph.

Pfizer's stock did well for a while, on the basis of all the "cost savings" from integrating Warner-Lambert and Pharmacia, mainly by laying off all those people. But when the chickens came home to roost due to their weakened R&D, the stock went down.

[oceanview]

so Carly Fiorina "built" Hewlett Packard, and Compaq? no, she looted them.

People like Gates and Ballmer and Larry Ellison - I have respect for, they took nothing and created a "big" something. If they got a big payday because of it, that's great.

But increasingly, we have more "looters" in the executive suites, not "builders".

[the808bass]

Grandpa not getting excited enough is a medical crisis now, and that helps the pill maker out immensely. I'm sure it was a market decision.

What products are paid for by insurance is indeed a market-driven decision. Customers clamored for this drug so much that employers and PBMs were put under pressure to cover it. In the end, the (self-insured) employers and managed care organizations (including PBMs) came to the conclusion that it was cheaper for them to cover this drug at a preferred rate in order to receive rebates from the pharmaceutical company. No PBM is going to cover a drug at a preferred rate unless it makes economic sense for them to do so.

[A. Pole]

The man needs to be able to retire in dignity, $180 million is a chump change! Do not dare to question the wisdom of Free Market, read Dickens!

[A. Pole]

The man needs to be able to retire in dignity, $180 million is a chump change! Do not dare to question the wisdom of Free Market, read Dickens!

[eddie willers]

They should just go back and reread Capitalism.

This guy was no Hank Rearden or Bill Gates.

He was a hired hand under who's stewardship the company lost 40%.

If there was justice the only thing he should have gotten was a pink slip and a hearty "AMF!"

[jwalsh07]

What a bunch of class-envy freepers here!! They should just go back and reread Capitalism.

What brand of capitalism is it that a CEO gets rewarded with an extroadinary retirment package for running a company that underperforms and transfers investors money directly into the pocket of the Chief Underperformer?

[A. Pole]

No wonder drug prices are soooooooo $$$$$$.

And he is ONE PERSON ONLY.

[Clintonfatigued]

Why is it that raising the minimum wage would hurt the nation, but outrageous, Guilded Age payoffs like this are examples of free enterprise at its best?