Valeant halts CEO’s US$29.8M stock award in pay overhaul
Valeant Pharmaceuticals
International Inc. plans to kill a US$ 29.8 million stock award it gave chief executive officer Joseph Papa as the company revamps its compensation program for sen- ior managers.
Papa and chief financial officer Paul Herendeen, who both received large upfront equity awards when they were hired in 2016, will instead get smaller annual grants, Valeant said Monday in a regulatory filing, noting that the decision was partly based on shareholder feedback.
Papa’s soon- to- be- cancelled award would have given him a minimum of 933,416 shares if Valeant’s stock price reached US$ 150 within f our years, gaining more than 350 per cent from the time of the grant and 10 times current levels. If the price eclipsed the top threshold of US$ 270, the award could have yielded the CEO as many as 1.87 million shares worth about US$500 million.
The grant resembles those former CEO Michael Pearson received in 2011 and 2015, which were set to pay out several times the target number of shares if Valeant had achieved goals for shareholder return. The 2015 award would have been worth US$ 2.66 billion if Valeant’s share price reached at least US$ 1,181.81 on three separate dates between October 2019 and April 2020.
Equity awards that vest if stock-return targets are met generally are seen as friendly to shareholders. But they can also incentivize executives to sacrifice long- term investments to drive up the share price, according to a 2016 paper by David Larcker and Brian Tayan who study corporate governance at the Stanford Graduate School of Business.
Papa, who wasn’t award- ed any equity in 2017 and will get a US$ 10 million l ong- term i ncentive this year, is seeking to t urn around the debt- laden company tainted by scandals involving a controversial distribution model and price hikes.
Papa’s long-term incentive will consist of stock options and restricted shares, some of which are linked to shareholder return and return on tangible capital. Herendeen will get a similar package valued at US$3.5 million, according to the filing.