This CEO Should Be Ashamed of Himself

Here at The Motley Fool, we believe in putting the interests of shareholders first. That all starts by holding the head of a company -- the CEO -- fully accountable for the company's actions. But, as Foolish colleague Alyce Lomax has pointed out multiple times, there's a widening gap between what some CEOs are being paid and what those same CEOs probably should be getting paid.

Some pundits have called for more pay-for-performance packages, but it's incredibly difficult trying to change pay policies that have deep roots on Wall Street.

Today, I want to highlight one recent CEO pay raise that has me more than raising my eyebrow. This pay increase is a direct example of why these same pundits are calling for pay reform in the first place, and is truly disproportionate with reality.

Ian Read, CEO ofPfizer (NYS: PFE)
After receiving a "paltry" $17.4 million in 2010, Read's total compensation was boosted to $25 million, which included a $1.5 million salary, a $3.5 million cash bonus, and various stock and option awards. The bonus was actually $900,000 more than his target bonus set earlier in 2011.

Read replaced former Pfizer CEO, Jeffrey Kindler, in December 2010 after Kindler received $24.7 million in his final year. To say the least, shareholders were not pleased with the amount of his pay package. Read's pay package passed with only 56% shareholder approval in 2011, down from nearly 97% approval the year before.

I, for one, wouldn't call a 44% CEO pay increase a savvy move considering Pfizer's cloudy near-term outlook. Lipitor, which accounted for $9.6 billion of Pfizer's $67.4 billion in annual sales, began facing generic competition in December from Watson Pharmaceuticals (NYS: WPI) and Ranbaxy International and saw sales plummet 25% for the quarter. Expect Lipitor sales to erode significantly more going forward.

In addition, Pfizer is in the midst of a multiyear cost-cutting campaign instituted in 2005 that includes eliminating a grand total of 55,400 jobs. That's not a misprint -- that's 55,400 jobs gone, eliminated, axed! Pfizer announced the final phase of those jobs cuts recently, which will target 16,300 jobs and save the company a purported $1 billion in 2012. I have to wonder, how out of touch with reality do you have to be to give yourself a 44% raise as you are in the process of eliminating 16,300 jobs?

Then there's Pfizer's pipeline. With 23% of its revenue stream losing patent protection by 2014, one month ago I proclaimed Pfizer to be the worst of the Dow Jones Industrial Average's (INDEX: ^DJI) 30 stocks -- in part because of its lack of innovation. Mylan (NYS: MYL) is already producing a generic version of Pfizer's glaucoma treatment, Xalatan, while Dr. Reddy's Laboratories (NYS: RDY) began selling generic Geodon this month. Generic competition appears ready to eat Pfizer's revenue for lunch, and Ian Read is giving himself a raise.

For shame, Mr. Read! For shame!

Was Ian Read's pay raise justified? Let me and your fellow Fools know in the comments section below. If you're interested in a medical company that is showing promise, then I suggest you get your copy of our latest special report from the Rule Breakers team. Discover which company they feel is the next rule-breaking multibagger for free!

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is unscrupulous when pointing out CEO pay that makes no sense. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of Pfizer and Dr. Reddy's Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's just the right price: free!

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