Pfizer hands CEO massive pay raise—plus $8M bonus—to dissuade him from retiring

Ian Read
Pfizer CEO Ian Read's challenges include competition to its top oncology drugs and persistent questions about the company's need to make a big acquisition. (Pfizer)

Please don’t go, Ian Read. That’s the message Pfizer’s board of directors has made loud and clear to the almost-65-year-old CEO, who could very well retire with a $15.7 million pension package.

The pharma giant considers Read the most qualified person to steer the company through a host of challenges, from oncology trial disappointments to investor pressure to make a big acquisition. That’s the primary takeaway from Pfizer's new proxy statement.

Read’s total 2017 compensation spiked up 61% to $27.9 million, according to the proxy (PDF). The package included a special equity bonus worth $8 million, contingent on Pfizer’s stock returning an average of at least 25% for 30 consecutive trading days anytime before the end of 2022.

In return, Read has to stay on through March of next year and turn down any job offers from a rival company for two years after that.

Pfizer’s board formulated Read’s pay package after “lengthy evaluations and a series of discussions” in 2016 and 2017, according to the proxy. Board members concluded the compensation would constitute a "compelling incentive for Mr. Read to continue his leadership of Pfizer," it said.

The company argues Read has achieved plenty to earn the rich pay package. During his tenure, which started in December 2010, Pfizer’s shares have returned 178%, compared to the 25% return on the S&P 500 over that time, and the company has returned $110 billion to shareholders in repurchases and dividends, the proxy points out. This despite the fact that the company sustained $27 billion in lost sales of drugs that went off patent, including its cholesterol blockbuster Lipitor and erectile dysfunction med Viagra.

SPECIAL REPORT: Top 10 U.S. patent losses of 2017 - Viagra

All that may be true, but Pfizer’s recent results portend a tough road ahead for Read. Its blockbuster pneumonia vaccine, Prevnar, posted better-than-expected sales of $1.53 billion in the fourth quarter, but the company warned of flat sales for the product this year. Sales of breast cancer drug Ibrance came up short by $241 million during the quarter as new competitors entered the market.

The oncology franchise faces other challenges, too. Pfizer and Merck KGaA’s cancer drug Bavencio has turned in disappointing trial results in three separate studies that could have helped the drug expand its market with new indications. And in February, the FDA handed an early approval to Johnson & Johnson’s new drug for nonmetastatic prostate cancer—putting it ahead of Pfizer and Astellas, which are also gunning for the same market for their drug Xtandi.

RELATED: Prostate cancer shake-up looms with new data from Pfizer, Astellas and Johnson & Johnson

Then there’s the M&A question. Thanks to tax reform, Pfizer has said it could repatriate $24 billion in overseas cash, and the company is often cited as a likely suitor for Bristol-Myers Squibb. During the fourth-quarter conference call, Read said he didn’t feel under pressure to make any big purchases, but he did predict a wave of consolidation in the industry. He added that if there were opportunities to add value for shareholders in an M&A frenzy, “I expect that Pfizer would be at the forefront at it.”

Read also will have to contend with Pfizer’s consumer business, which the CEO has said he’d like to offload so he can devote resources to higher-growth pursuits. But last month, reports emerged that several companies had passed on buying Pfizer’s consumer unit and that only GlaxoSmithKline and Reckitt Benckiser Group remain interested.

Pfizer’s board may have concluded that Read is worth his 61% pay raise, but investors are clearly sending a message to the CEO about the tough road ahead. Bloomberg points out that in 2017, Pfizer’s shares returned 16% including reinvested dividends, trailing the 22% return on the S&P 500 Health Care Index.