Valeant spurns its troubled past with new exec pay edits

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Valeant is rejigging its bonus structure, tying cash bonuses to adjusted EBITDA targets and broadening clawback provisions to more employees.

Troubled Valeant has been spinning its wheels over the past year trying to stage a turnaround that still seems light-years away. But now, it’s changing executive compensation, hoping to get some of its problems under control—and to avoid repeating its troubled history.

For one, the embattled pharma has switched up the way it figures its exec bonuses. From here on out, cash bonuses will be based, in part, on whether the company hits certain adjusted EBITDA targets, which are tied to the company’s debt covenants. In other words, the move will align exec incentives and creditors’ requirements.

The “entire focus is on servicing debt,” Evercore ISI analyst Umer Raffat said via email.

It’s a tweak likely to cheer investors, who have harbored concerns about the company defaulting on its massive debt pile. Last year, it came close, but conceded to new fees and higher interest rates to convince debt holders to alter their terms.

Related: Debt-laden Valeant goes deeper in the hole with $210M Salix settlement

Valeant also edited its “clawback” policies, widening their scope so that they apply to equity-based incentive pay for any employee—not just the drugmaker’s top brass. The revised policy says the company may force workers to return incentive pay if their "detrimental conduct" causes significant "financial, operational or reputational harm"—or if their "fraudulent or illegal misconduct" forces it to restate its financials.

The changes, in their own ways, could help Valeant break with its recent past. In 2014, completing a major M&A deal—the kind that buried Valeant in its current debt mess—factored positively into executive compensation. That, of course, incentivized execs to keep making deals.

Related: Former Valeant, Philidor execs plead not guilty to fraud and kickback charges

And Valeant also has experience with staffers causing “reputational harm” through “illegal misconduct,” if multibillion-dollar fraud and kickback charges handed down by federal prosecutors last November have any truth to them. The company suffered plenty of reputational tarnishing and an earnings restatement before the feds leveled criminal charges against former exec Gary Tanner—and claimed that he defrauded Valeant itself.

Valeant still has a long, long road to redemption ahead, though. Earlier this week, the Quebec-based drugmaker—which has suffered from political pricing pushback, a slew of other investigations, employee turnover and poor product sales—reported a 13% year-over-year revenue crash, and a net loss that skyrocketed by 34%.