Not Exactly 'Pay for Performance' for These Big Pharma CEOs

Pile of cash
Pile of cash

Most workers would worry about losing their jobs, let alone receiving a bonus, if they slacked off, but CEOs are held to a different standard. For example, despite several stumbles, GlaxoSmithKline's (GSK) CEO got a nice bonus, and Johnson & Johnson's (JNJ) CEO even got a raise for a job badly done.

British drugmaker GlaxoSmithKline CEO Andrew Witty's base pay of 1 million pounds ($1.63 million) in 2010 was reported by some as "unchanged" when in fact it increased by 52,000 pounds (nearly $85,000) -- a respectable annual pay for most people. However, Witty's bonus was cut by 41% to 1.177 million pounds million from 2 million pounds in 2009, according to GSK's annual report.

A Bonus for What?

Overall, his pay was cut by 734,000 pounds from 3 million pounds to 2.3 million pounds last year after GSK missed its profit targets. Last month, Glaxo posted a fourth-quarter net loss because of a huge legal charge related to "U.S. sales and promotional practices and for product liability cases" regarding its controversial type 2 diabetes drug Avandia.

For the year, reported sales fell 1%, thanks partly to the continued effect of generic competition to herpes treatment Valtrex, the rapid loss of sales of Avandia following the European Union ban and the Food and Drug Administration's restriction because of cardiovascular risk, the company said.

Should Witty have gotten a bonus at all? Well, the company said in the report that "Despite 2010 being a challenging year for GSK. . .management achieved key financial and strategic objectives." Among those it mentioned were delivering underlying sales growth of 4.5% (excluding the above factors), strong performance in emerging markets and consumer health care, increasing the R&D pipeline potential and simplification of GSK's business model.

This "simplification" included 5,201 jobs cut, any of whom would have likely preferred a smaller bonus over being laid off.

Yet Another Recall

When it comes to Johnson & Johnson's CEO William Weldon, things are even less clear. The largest consumer health care company has been plagued by a huge amount of recalls since 2009 that cost it $900 million in sales last year. J&J also took a product-liability charge related to the recall of certain DePuy hip implants of $922 million.

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Only Wednesday, another recall came to light, this time of surgical sutures in December because of potentially faulty packaging seals that raised a contamination risk, Reuters reported. The staggering number of recalls range from potentially harmful products reaching consumers to a simple typo on package instructions and involved products from children's medicines to contact lenses.

What did Weldon get in return? A pay raise. The New Brunswick, N.J.-based company hiked the CEO's salary 3% to $1.92 million effective Jan. 1, up from $1.86 million in the previous year, according to a Securities & Exchange Commission filing. However, the company cut Weldon's annual bonus 45% to $1.97 million from $3.6 million in 2009, which seems the least it could do in light of J&J's troubles.

A Top Job-Cutter

For 2009, Weldon was the second-highest paid CEO with a total compensation of $25.6 million -- three times the average for CEOs of S&P 500 companies -- and over 500 times the median household income (of $49,777 in 2009 according to the Census Bureau). In that year, J&J laid off 9,000 people, which landed Weldon a mention as one of the CEOs who earned significantly more than their peers as they cut the most jobs during the recession.

J&J is expected to release Weldon's total compensation for 2010 next month, according to the Associated Press, but we already know it includes 560,691 stock options at $62.20 each, and 1,357,855 Certificates of Long-Term Performance at $5.03 each. It will be interesting to hear the reasoning behind this "pay-for-performance."