Lilly’s Departing R&D Chief Gets A $2M Payout
4 CommentsBy Ed Silverman // November 19th, 2009 // 6:42 pm
Just as the big drugmaker gets set to slash some 5,500 jobs as part of a mammoth restructuring, the outgoing head of R&D, Steve Paul, is getting a handsome, $2 million severance payout. The 59-year-old Paul, who joined Lilly in 1993 and has headed its storied research operations for the past six years, last week announced that he would take early retirement.
There had been speculation, though, surrounding the bespectacled scientist. When Lilly announced its grand reorganization, Paul’s name failed to appear in either related announcement (see here and here). The backdrop to such scuttlebutt were a couple of recently failed Phase III drugs, which only served to underscore a meager late-stage pipeline and the magnificently steep patent cliff that lies ahead. For the record, Lilly says Paul had planned to retire early next year.
In any event, Paul will receive an extra 10 years of service credit for his pension benefit and become fully eligible, which won’t be reduced by an early retirement decision. How much all that is worth is not clear. However, Paul was eligible to receive that extra credit only if he remained employed past age 60, or was involuntarily terminated before he turns 60. Again, Paul is 59. Last year, Paul’s salary was $1 million and his total compensation was $6.25 million, according to the proxy statement (see page 33).
Hat tip to IndyStar
Condor
Great stuff, Ed!
To be clear, here, being given ADDITIONAL “years of credited service” toward his pension — 10 of them(!) — is staggering!
That will be worth perhaps an ADDITIONAL $20 million to $30 million, if he lives to be 80 or 85. You write:
“. . . .In any event, Paul will receive an extra 10 years of service credit for his pension benefit and become fully eligible, which won’t be reduced by an early retirement decision. How much all that is worth is not clear. However, Paul was eligible to receive that extra credit only if he remained employed past age 60, or was involuntarily terminated before he turns 60. Again, Paul is 59. Last year, Paul’s salary was $1 million and his total compensation was $6.25 million, according to the proxy statement. . . .”
So, if his Lilly pension is typical (and I haven’t taken the time to really parse the proxy disclosures, nor will I!), he’ll get an ANNUAL pension equal to 90 percent THE AVERGAE OF his highest three years of total salary.
Assume (for round numbers) that the average of his last three years is $1 million (as was this one). He’ll get $900,000 a year, for life. If he didn’t have the extra ten years of service ADDED — as a gift — he’d probably take home about a quarter of that amount each year, or $225,000. In some pension plans, the “back-end loading” is so great, that he might only get 10 percent of those last three years’ pay, as his annual benefit.
Again, nowhere on Earth (if you are a normal lower level employee, even at a hugely profitable multi-national public pharma company!) can you get such “special dispensations” from an ERISA qualified pension plan — except at the top of the house.
Because the figures are very difficult to estimate, most people (like the Indy Star, and most WSJ reporters) just throw their hands up — and say “well — we know it is a lot. . .” — then trail off.
It is. But, in most cases, it is a HUGE amount — much more than most people would guess.
Namaste
Condor
It is thus particularly ironic that — in the referenced proxy — the Executive Compensation Committee Report, signed by board members, states as a goal:
“. . .Compensation and benefit programs should be egalitarian. While compensation will always reflect differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefit programs should be broadly similar across the organization. . . .”
I guess some pigs are more equal.
[It looks like the proxy estimates the one year incremental INCREASE in Paul’s pension-line compensation, as a result of a terminiation (like this one), at over $3 million (page 42-43).
One year. Wow. I’ll shut up now.
Namaste
SteveM
I would have been happy to screw up the Lilly pipeline similarly for only half his salary.
Lisa Van Syckel
Hopefully, he will donate some of that new found cash to the Marine Corps Toys for Tots. Nothing better then a smile on a child’s face at Christmas,..yes?