Did Layoffs Help Hassan And Weldon Prosper?
11 CommentsBy Ed Silverman // September 1st, 2010 // 8:01 am
Eliminating jobs is never easy, but some CEOs suffer less than others when it comes time to living with the consequences. For instance, did you know that the CEOs of the 50 companies that trimmed the most jobs since the latest recession began took home 42 percent more pay than their peers at S&P 500 firms?
Who were the layoff leaders? Topping the list was Fred Hassan, the former Schering-Plough ceo, according to a report by the Institute for Policy Studies. Hassan received a $33 million golden parachute when the drugmaker was bought by Merck last year. Meanwhile, 16,000 jobs are being eliminated (background). Hassan’s total 2009 pay of nearly $50 million could cover the average cost of these workers’ jobless benefits for more than 10 weeks.
Next up is the king of recalls, Johnson & Johnson ceo, Bill Weldon, who took home $25.6 million, more than three times as much as the S&P 500 CEO average, at a time when his firm was slashing about 9,000 jobs (more background). Among the cuts are 300 jobs at a McNeil Consumer Healthcare plant in Fort Washington, Pa., where a plant is shuttered in the wake of the recall of millions of bottles of pediatric over-the-counter meds (see here). Weldon also bought a nice home recently (see here).
“CEOs are clearly not hurting. But they are…causing others to needlessly hurt — by cutting jobs to feather their own already comfortable executive nests…Most careful analysts of the high-finance meltdown that ushered in the Great Recession have concluded that excessive executive compensation played a prime causal role. Outrageously high rewards gave executives an incentive to behave outrageously, to take the sorts of reckless risks that would eventually endanger our entire economy,” ISP writes, which uses the report to call for Congress to reform executive pay and bring it back to “mid-20th century levels.”
pharmavet
No surprise here. CEO’s are rewarded for improving bottom line growth. Cost cutting is easiest way to achieve this. All CEO’S wish to improve top line growth as well, but won’t get a chance to do it unless the bottom line improves first. EBITDA, top line and bottom line, that’s all shareholders care about. The reality today is that the rank-and-file employee is just a nameless, faceless number on an Excel spreadsheet; nothing more, nothing less.
Salient point
S-P was bought out & J&J has had a rocky year, with a plant closing that was a no-brainer PR move & a share price now about 13% off its high. These situations are both so sui generis that it’s hard to draw any broad conclusion from them.
Condor
I’ll respectfully disagree here — broad conclusions are warranted.
There is very little that will square a $225 million (all in) golden parachute, when perhaps 26,000 people lose their livelihoods — to pay it out.
Yesssh! No. 1 — with a silver bullet — that’s Freddie (”Fangs”) Hassan, the serial CEO/bust-up Vampire King. [AHP, Pharmacia, Schering-Plough. . . And coming soon to an unemployment line near you! -- Bausch + Lomb. . . .]
Namaste!
Elmore
These CEOs are like the barons who used to tax peasants on their land till they starved.
pharmavet
Condor, unless my calculator is wrong, only 2600 people would have to lose their jobs to pay for Fred’s $225,000,000 golden parachute, at an average pharma salary of $85,000/year.
Surface Analysis
Pharmavet,
Your number seems high to me. A quick internet search netted $58,000 - $64,000/year for the pharma salary median. Also, yes CEO’s are rewarded for impacting the bottom line; positively or negatively. It is very rare to see a CEO ousted even after decades of steadily declining sales and returns. Instead the bottom line is fortified with transfer costs and layoffs which present an ever diminishing return. 6 sigma tries to reduce waste but launches nothing new and is now an excuse to ignore the cost of quality at many companies. I still believe it will sort itself out because pharma and device have signed the 1970’s Detroit fools bargin of short term gains over long time survival and if “buyer beware” is the only response, then so moot it be. It will unfortunately be hard on those of us hard working folks presently working for these short sighted companies.
Salient point
Condor-
I didn’t state my case very well. There are certainly conclusions to be drawn, like yours, about the general merits of executive compensation in these times. I was just referring to the “CEO salary:layoff ratio” for S-P & J&J vs other pharma companies. I don’t know if comparing these 2 companies with Pfizer, Novartis, GSK, etc, makes sense because their particular situations were unusual.
Condor
I hear you Salient Point — I catch your drift.
Now, pharmavet, and Surface Analysis: I was apparently opaque.
“Fangs” Freddie Hassan fired over 26,000 people — in just his final three years — at legacy Schering-Plough (he was there ALMOST six years — to earn over $300 million!). . . .
And thus — even after all that blood-letting — he was unable to keep old S-P an independent player (as he repeatedly promised rank-and-file he would, via “painful, but needed” pruning). [Most recently, his layoffs were called a "Productivity Improvement Plan", or PIP, for short.]
In the end (as he’d done twice before), he simply took the gold, busted-up the business, and broke-up the segments, and handed the company, lock, stock and barrel — to Merck. Then, he waddled off into the sunset (until Warburg Pincus dropped him in at Bausch & Lomb, last winter).
So, I guess the irony of his bloodletting — and Sheckel (שקל)-grabbing — was lost on you both.
I’ll try to be clearer next time — when he loots B + L — in about two more years.
Namaste
pharmavet
Weep not for the pharma worker. Based on the most recent Forbes 500 ranking of CEO compensation, the median pharma CEO compensation is $9.5 million. Using Surface Analysis’ estimate of $58K/employee, this ratio is only 164/1, which compares quite favorably with the 300/1 ratio of other US industries. Also, only 15 pharma CEO’S made the list, a paltry 3%, hardly an overrepresentation.
http://www.forbes.com/lists/2008/12/lead_bestbosses08_CEO-Compensation_Rank_20.html
Condor
IF they are working, at all. With guys like Hassan around, it is increasingly difficult for the ordinary pharma worker to stay employed.
That’s my thesis, vet.
I’ll admit that (to my eye) your defense of pharma CEOs here, by suggesting that the rank-and-file are fully-compensated seems. . . like rearranging all those hundreds and hundreds of deck chairs — just so! — as Titanic sails toward the setting sun late on 14 April 1912, out of Ireland.
Namaste
pharmavet
Condor, in deference to the Irish, who have their own titanic problems at the moment, The RMS Titanic departed from Southampton, England on April 10, 1912.
Your shipping analogy is good, however. The late shipping magnate and New York Yankee owner George M Steinbrenner was described by a baseball commissioner as “The Titanic in search of an iceberg”. I would apply that same characterization to most of today’s Pharma CEO’S who are still wedded to the blockbuster concept.