Valeant Pharmaceuticals has struck its final deal with former CEO Michael Pearson. The now-discredited chief executive, lambasted for opportunistic price hikes and questionable accounting practices, has negotiated a severance package worth almost $12 million.
One surprising part of that goodbye pay? Pearson stands to collect $83,000 per month in “consulting fees” till the end of this year, and another $15,000 monthly through 2017. That’s almost $850,000.
Another surprise: Entitled to prorated salary and bonus for 2016, Pearson not only collects the pay owing for the four months he served as CEO this year, but a bonus at 150% of target. With a target of two times his base salary--or $4 million--according to the company’s 2016 proxy statement, that’s a bonus of $1.3 million.
It’s not the biggest golden parachute handed off to an executive essentially pushed out of a company. And it’s far from the biggest post-employment consulting agreement. Former Novartis CEO Daniel Vasella struck a deal for $25,000 per day in consulting fees after his term as chairman ended, plus a $250,000 annual retainer. And he might have collected some $73 million in return for his non-compete if shareholders and Swiss pay watchdogs had not pushed back, and very loudly.
But it’s far from the smallest, too. Former Sanofi CEO Chris Viehbacher was in line for a $7.8 million payout after his sudden departure in October 2014. Viehbacher left Sanofi with sales growth and restructuring struggles ahead, but no restated financial statements or pricing investigations on the books.
Of course, Viehbacher's annual pay package wasn't as rich as Pearson's to begin with. And Pearson deserves his bonus payout, according to the company’s severance agreement, because of his performance against “transitional metrics,” as well as its Q1 financial results and Q2 progress.
Plus, Pearson gets the full $9 million in severance pay for which he’s eligible under contract. Total: More than $11.85 million. And his equity awards vest as stipulated in Valeant’s proxy, with a big potential payoff if the company’s stock recovers--and if not, nothing at all.
In return, Pearson signed a confidentiality, “non-disparagement” and non-compete agreement, pretty standard for departing executives. He agreed to hold onto 1 million shares of stock.
Pearson also agreed to cooperate with the raft of federal and state investigations into Valeant’s pricing policies, specialty pharmacy relationships and so on. He promised to not only work with Valeant and its lawyers, but to cooperate as a witness if necessary.
On the flip side, Valeant will pay Pearson’s legal fees, and Valeant indemnified him for his actions there before he left, and after, in his work as a consultant.
Valeant has plenty of legal problems to face, with Justice Department and Federal Trade Commission subpoenas and a variety of state investigations into its business practices.
The company is trying to distance itself from its previous practices, and so far, Pearson has cooperated with that as well. In a Senate hearing last month, he apologized for an over-aggressive approach to price hikes, and for M&A designed to capitalize on sudden and substantial price increases.
“It was a mistake to pursue, and in hindsight I regret pursuing, transactions where a central premise was a planned increase in the prices of the medicines,” Pearson said during the hearing.
- read Pearson’s severance agreement
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