File this in the “nice work if you can get it” category: Merck & Co. pharmaceuticals had a terrible year in 2004, a year that will likely result in the company going bankrupt if all those lawyers circling the wagons can be believed. In case you don’t recall, Merck is the manufacturer of the ill-fated Vioxx, a $2.5 billion painkiller that is proving too weak to stop the pain of having to withdraw this faulty drug from the market after being associated with an extraordinarily high rate of heart attacks and strokes in patients who took the drug for longer than 18 months.
In business school, I learned that the #1 job of any company is to increase shareholder value. That’s it. Everything else you do is secondary to this core job requirement. So how’d CEO Gilmartin do in 2004 in this regard? Well, the value of a share of Merck dropped 21% in 2003 and then dropped an additional 33% in 2004. Not so stellar.
And how did the Board of Directors of Merck, the Compensation Committee, respond?
Surprise! By giving CEO Raymond Gilmartin a $1.4 million dollar bonus.
Asked by Wall Street Journal writers about this, company shill, uh, spokesman, Tony Plohoros responded “Merck’s compensation and benefits committee believes that executive officer bonus awards for 2004 were consistent with the level of accomplishment and appropriately reflect company performance.”
This is just apalling in my book. The company has had a terrible year, there’s been no particular signs of leadership from the corner office, they stumbled terribly with their Fosamax patent extension, and the Board of Directors react by giving Gilmartin a $1.4 million bonus? What about all the employees of Merck who just lost their retirement accounts as the stock plummeted more than 50% in the last 18 months? What of all the investors who were lead down the garden path by rosy earnings estimates and cheery Annual Reports that never mentioned that there was trouble brewing in Vioxx city?
Don’t think Merck is a company in trouble? You’re oh, so horribly wrong. They acknowledge that there are already 850 lawsuits filed against them, representing 2400 patients suing for personal injuries because of Vioxx. Both Business Week and Fortune have already predicted the imminent bankruptcy or bloodletting of Merck because of the Vioxx fallout.
But hey, what’s a cool mil and a half — and did I mention the 83,333 shares also awarded as part of the bonus? Or the $1.5 million annual salary he receives? Or the $47.9 mil in unexercised options he holds? — between a CEO and a chummy board?
After the terrible few years of executive compensation completely out of line with corporate performance, I was optimistically hoping we’d moved into a new era, what what Sarbanes Oxley and similar, but I am wrong. If ex HP CEO Carly Fiorina can get a $21 million parting gift for having mutilated Hewlett-Packard and Merck CEO Raymond Gilmartin can get a multi-million-dollar bonus for having lead his company into bankruptcy, well, I think I’m the one in the wrong field.
Anyone need a CEO who will promise to do a mediocre job and quit in two years in return for at least five million in annual compensation and a ten mil parting compensation package? I’m definitely available…