Proxy published: 3/25/2015
Annual meeting: 5/5/2015
The board made several changes in its compensation practices in addition to the announced leadership transition. CEO Lamberto Andreotti, in his final year as CEO, received total compensation of $27,062,382.
In May, COO Giovanni Caforio will become the CEO and Andreotti will become the Executive Chairman of the Board, with the same salary and bonus opportunity through August 3, 2015.
Generally shareholders frown of having a paid executive chairman as well as a CEO, as this can result in high level of payments. We note however that this position is defined and time limited so less problematic.
However, it appears that as part of the transition it appears that incoming-CEO Caforio will receive two major long term incentive awards this spring, one in March for his current role of Chief Operating Officer and one in May for his new position of CEO. Shareholders may have concerns about what appears to be pay for two positions.
The compensation committee took a number of other action this year. In an effort to simplify their performance share unit (PSU) Awards the company moved from having three three-year over-lapping tranches to a single annual performance period. The company states that the 3-year vesting and the introduction of a relative 3-year TSR modifier will serve the goal of “preserving and enhancing the long-term nature of the award.”
The company added a “pipeline metric” to its annual bonus plan. Of the three metrics for the annual bonus this was the one achieved at the highest level. This metric replaces the prior cash flow metric and, according to the company, “incorporates both quantitative and qualitative elements.” The metric “measures the sustainability and output of our R&D pipeline portfolio.” It is comprised of goals in two categories, Near-Term Value (Regulatory submissions and approvals for new medicines and marketed products in U.S., EU, and Japan) and Long-Term Growth Potential (development candidates, first in human, proof of confidence, registrational study stats).”
This metric appears to be a positive step toward focusing executives on long-term sustainable growth.