This CEO Should Be Ashamed of Himself

Here at The Motley Fool, we believe in putting the interests of shareholders first. That all starts by holding the head of a company -- the CEO -- fully accountable for the company's actions. But, as Foolish colleague Alyce Lomax has pointed out multiple times, there's a widening gap between what some CEOs are being paid and what those same CEOs probably should be getting paid.

Some pundits have called for more pay-for-performance packages, but it's incredibly difficult trying to change pay policies that have deep roots on Wall Street.

Today, I want to highlight one recent CEO pay raise that has me more than raising my eyebrow. This pay increase is a direct example of why these same pundits are calling for pay reform in the first place, and is truly disproportionate with reality.

Ian Read, CEO of Pfizer (NYSE: PFE  )
After receiving a "paltry" $17.4 million in 2010, Read's total compensation was boosted to $25 million, which included a $1.5 million salary, a $3.5 million cash bonus, and various stock and option awards. The bonus was actually $900,000 more than his target bonus set earlier in 2011.

Read replaced former Pfizer CEO, Jeffrey Kindler, in December 2010 after Kindler received $24.7 million in his final year. To say the least, shareholders were not pleased with the amount of his pay package. Read's pay package passed with only 56% shareholder approval in 2011, down from nearly 97% approval the year before.

I, for one, wouldn't call a 44% CEO pay increase a savvy move considering Pfizer's cloudy near-term outlook. Lipitor, which accounted for $9.6 billion of Pfizer's $67.4 billion in annual sales, began facing generic competition in December from Watson Pharmaceuticals (NYSE: WPI  ) and Ranbaxy International and saw sales plummet 25% for the quarter. Expect Lipitor sales to erode significantly more going forward.

In addition, Pfizer is in the midst of a multiyear cost-cutting campaign instituted in 2005 that includes eliminating a grand total of 55,400 jobs. That's not a misprint -- that's 55,400 jobs gone, eliminated, axed! Pfizer announced the final phase of those jobs cuts recently, which will target 16,300 jobs and save the company a purported $1 billion in 2012. I have to wonder, how out of touch with reality do you have to be to give yourself a 44% raise as you are in the process of eliminating 16,300 jobs?

Then there's Pfizer's pipeline. With 23% of its revenue stream losing patent protection by 2014, one month ago I proclaimed Pfizer to be the worst of the Dow Jones Industrial Average's (INDEX: ^DJI  ) 30 stocks -- in part because of its lack of innovation. Mylan (NYSE: MYL  ) is already producing a generic version of Pfizer's glaucoma treatment, Xalatan, while Dr. Reddy's Laboratories (NYSE: RDY  ) began selling generic Geodon this month. Generic competition appears ready to eat Pfizer's revenue for lunch, and Ian Read is giving himself a raise.

For shame, Mr. Read! For shame!

Was Ian Read's pay raise justified? Let me and your fellow Fools know in the comments section below. If you're interested in a medical company that is showing promise, then I suggest you get your copy of our latest special report from the Rule Breakers team. Discover which company they feel is the next rule-breaking multibagger for free!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is unscrupulous when pointing out CEO pay that makes no sense. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of Pfizer and Dr. Reddy's Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's just the right price: free!


Read/Post Comments (6) | Recommend This Article (40)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 20, 2012, at 12:32 PM, gaileg5254 wrote:

    So glad I got the package in 2007, and no longer have any Pfizer stock.

  • Report this Comment On March 20, 2012, at 12:57 PM, DrWD wrote:

    When the heck did it become outsiders or the government's darn business what a ceo is paid????? (Explicatives left out) It is the stockholders and the stockholders only who have a right to determine salary. Call the stockholders the fools, but i'd say there's some pretty smart ceo's out there....

  • Report this Comment On March 20, 2012, at 2:49 PM, fredlu33 wrote:

    Of course he is out of touch! If the shareholders were really asked in these terms defined here I’m sure they would deny that sort of an increase, I am one.

    Consider everyone’s pay increases, interest rates available, Social Security increases etc. the only ones we can’t look at would be Congress and the president they perhaps fallen to his category.

  • Report this Comment On March 20, 2012, at 7:52 PM, ResN wrote:

    Pfizer has been subjected to totally incompetent management for about 20 years now. So why would anyone expect anything else but another fat reward for incompetence. Hey, let's fire another 50,000 employees so he can get $20M more bucks. Pfizer stinks, big time.

  • Report this Comment On April 27, 2012, at 11:54 AM, SPUTE01 wrote:

    While the good employees who helped PUT you in that position... STRUGGLE to pay bills, keep a roof and feed, clothe and educted their children,,,I'm curious to know how you sleep at nite knowing you took their livelihood away by presenting them w/pink slip. There has to be justice somewhere along the line.

  • Report this Comment On May 09, 2012, at 1:53 PM, downgoesfrazier wrote:

    You should take a look at the pay for the co-CEOs of Annaly Capital Management (NLY) For 2011, they both had a base of $3MM and a bonus of $32MM. That's right...$70MM for the two of them. For three years, each has taken out over $74MM apiece.

    Sadly they are making money based upon a flaw mortgage market with guarantees from the US government. Who has ultimately paid for these huge payouts? Hmmm... .

    The bonus structure basically guarantees another $30MM payday unless the Comp Committee steps in.

    So Sean, what do you think of that?

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