Money for nothing. That’s basically what departing Novartis AG (ADR) (NYSE:NVS) chairman and former CEO Daniel Vasella would have gotten before an uproar in Switzerland nixed the deal. His non-compete agreement with the big pharma would have paid Vasella around $13 million for six years to not work for a competing firm — $72 million for doing nothing. That’s not merely a golden parachute. It’s a platinum parachute.
After the outrage erupted in the normally peace-loving Swiss public, Vasella and the Novartis board agreed to scrap the deal. However, the controversy made me curious about arrangements that other top pharma executives might have in place. Do shareholders in the U.S. have reason to be outraged over other platinum parachute deals?
The good news is that there is no competition with Novartis when it comes to sky-high non-compete agreements for executives who leave for any reason, at least with U.S.-based pharmaceutical companies. However, quite a few CEOs would be able to exit in style under certain scenarios.
Most of the large pharmas specify that top executives would receive compensation in the event of a change in control of the company. A notable exception was Johnson & Johnson (NYSE:JNJ). J&J doesn’t provide any additional compensation to CEOs or other current top executives in the event of a change in control of the company. Four companies stood out, though, as providing lucrative platinum parachutes.
Source: Company SEC filings.
Amgen, Inc. (NASDAQ:AMGN) ranks at the top of the list. The company’s CEO, Kevin Sharer, would receive nearly $37 million as a going-away gift. Gilead Sciences, Inc. (NASDAQ:GILD) CEO John Martin isn’t far behind. Martin’s parting prize would be a little over $36 million.
Neither George Scangos, CEO of Biogen Idec Inc. (NASDAQ:BIIB) , nor Ian Read, CEO of Pfizer Inc. (NYSE:PFE) would be hurting much should their companies change control. Both men would stand to receive close to $33 million.
What about if the CEO is forced out without a change in control event? Pfizer’s Read still wouldn’t be clipping coupons. He gets more than $22 million for any termination “without cause,” which means there was no misconduct involved.
Source: Company SEC filings.
Gilead’s Martin and Biogen’s Scangos might have to defer any plans to buy a yacht, since both men would get less than $8 million. Poor Kevin Sharer of Amgen would be left to fend for himself.
Pay for performance?
Of course, I’m being just a wee bit facetious. None of these CEOs would be struggling if their employment were terminated. That won’t happen because each already receives hefty compensation. At least they’re getting paid for working rather than for not working. That actually raises other questions. How much are these CEOs getting paid now? And are they worth it?
