Proxy Moxie: Schering-Plough’s Magic Market Cap
4 CommentsBy Ed Silverman // May 20th, 2008 // 7:43 am
The latest installment of the ongoing hoopla over Fred Hassan’s compensation began yesterday when Schering-Plough exec Sue Wolf fired off comments in response to a Forbes magazine piece that stated his $19 million cash and stock bonus in 2006 was based largely on the drugmaker’s market cap.
“Market capitalization,” wrote Wolf, Schering-Plough’s corporate secretary, vp for governance and associate general counsel, “was not a performance metric for any incentive plan since Fred joined Schering-Plough.” However, the drugmaker did use market cap as a metric in 2006, according to the 2007 proxy (please see page 25).
Interestingly, market cap was never listed in the 2006 proxy as a part of the plan to be adopted by shareholders for measuring compensation (please see pages 41-42), although total shareholder return was listed. Both are based on stock price, which was rising back then thanks to Vytorin. In effect, there was double weighting. More recently, the stock has been falling and - you guessed it - the market cap metric doesn’t show up in the 2008 proxy.
So was the mention of market cap in the 2007 nothing but an unfortunate mistake? If so, will Schering-Plough amend the filing? If not, what was Wolf trying to suggest when she wrote that market cap was never used as a metric? We asked for an explanation, but never received one. Either way, some shareholders may not be too thrilled.
Hat tip to Shearlings Got Plowed
destor23
The only difference between market cap and the total shareholder return is the dividend, which is 6.5 cents per share per quarter. It was 17 cents a quarter before Hassan took over. So, if total shareholder return is the metric, that makes a worse case for Hassan. The market cap is back to where it was when he started and the dividend is a fraction of what it was, amounting to a negative total shareholder return.
condor
Quite so, destor23 — Thanks for the H/T, Ed! — but it is significant that Schering did not have PERMISSION from its sharelholders to pay based on “market cap”, as NYSE listing standards require, for such compensation plans (and by reference, as SEC rules therefor require).
So it is not just bad comp. policy, at Schering, in play here — it may actually be. . . unlawful.
Dan
Ed,
Thanks for posting this and supplementing your related post on this issue yesterday.
condor
UPDATE TO MINE:
Perhaps Ms. Wolf’s remarks may be read to mean that since the time Mr. Hassan joined Schering-Plough, the stockholders have never approved a plan that allowed pay on “Market Cap” increases. And perhaps, we are required to infer, all by our lonesome-sleves, that the 2006 proxy makes payments out of the 2002 Schering stock-based compensation plan, not the 2005 version. And while that 2002 plan does, in fact, allow “Market Cap” as a metric, it is — to my eye — the hieight of sophistry to write what she wrote. In exactly what way, Ms. Wolf, does such parsing about CEO compensation help “earn trust, every day“? I am shrugging, here.