Should Hassan forfeit $13 million?

Should Fred Hassan (photo [1]) give back his bonus? That's what Forbes is asking this week, saying that the Schering-Plough CEO's 2007 compensation package [2] was probably artificially inflated by the fact that sales-damaging study results were held back until early January 2008. If the Enhance study--which pitted Merck/Schering-Plough's big moneymaker Vytorin against the now-off-patent Zocor--had been unveiled in November 2006 or March 2007 as cardiologists had long expected, Hassan might not have received $13 million of his cash compensation over those two years. The trial, you'll recall, showed that the Zocor-plus-Zetia combo Vytorin was no better than Zocor alone at preventing artery-clogging.

Here's how Forbes figures it: Hassan got $19 million in bonuses in 2006, including $9 million in cash, based largely on a Vytorin-fueled increase in Schering's market cap. The Enhance results probably would have eaten into that gain. But it's more likely that the study might have been ready for prime time in 2007, when Hassan got $4 million in cash bonus. If the study results simply stalled Vytorin and Zetia sales, Schering's EPS could have dropped to as low as $1.05 from 2007 actuals of $1.37. That would have wiped out $2 million of Hassan's cash bonus. If sales dropped, the hit would have been even bigger.

Schering protests, and rightly so, that this sort of hindsight isn't exactly 20/20. The company probably would have cut costs to minimize the EPS drop, for instance. And the company justifies the bonuses because it needs to hang onto its executive talent. But one corporate governance expert told Forbes that Hassan of all people might be one to give up a bonus under these circumstances. "[G]iven Hassan's reputation for open-mindedness in terms of compensation...if there were some doubts about whether he should receive a bonus, he would be more likely than others to voluntarily forfeit it. There are not many CEOs I'd say that about, but he would be one of them."

- see the Forbes article [3] 

Related Articles:
Hassan gets $30M pay package [2]
A turbulent week for Fred Hassan [4]
Hassan bullish on Schering-Plough [5]
Schering-Plough laying off 5,500 [6]