Extreme flextime in troubled times at Medicis…

August 11, 2011

Sometimes, we run into something really unusual in the filings. Periodically, filings intersect with current events far from the usual realm of corporate and financial headlines. And then there those rare occasions that we get both in the same document. That’s what we found tacked on to the end of the 10-Q that Medicis Pharmaceutical (MRX) filed at a few minutes before 5 p.m. on Tuesday.

Medicis, of course, has been under a pretty bright spotlight since mid-July, when police (and local journalists) were drawn to Chief Executive Jonah Shacknai’s Southern California mansion in response to two unusual deaths. First, on July 11, his six-year-old son, Max, was hospitalized after falling down a flight of stairs; he died four days later. On July 13, Rebecca Zahau, Shacknai’s girlfriend, was found hanged from a balcony on the property, naked and with her hands and feet bound. (Other reports refer to her as Rebecca Nalepa.) So far, there has been little word on the police investigation of Zahau’s death, though Radar Online said Tuesday that the inquiry could wrap up within “several weeks” and that the child’s death is being viewed as accidental.

All of this came to mind again as we saw Shacknai’s new employment agreement attached to the company’s 10-Q that was filed earlier this week. It runs into 2016 and guarantees him a salary of $1.1 million a year — essentially what he has been getting — with an unspecified annual bonus and stock grants, as well as eight weeks of vacation.

What really caught our attention were some extraordinarily flexible working arrangements written into the contract. It says he’s expected to work “on average a minimum of four (4) days per week,” either at the company’s Scottsdale, Arizona, headquarters, or, alternatively,

“the Executive shall be available during the business week to meet with Company personnel, attend telephonic meetings, and participate in other corporate matters from his home during the normal business week and/or at such other times as the Executive may be available…”

Part-time chief executives are unusual enough, as are provisions explicitly codifying the right to work from home (though we imagine, informally, CEOs have more flexibility there than the rank-and-file). More unusual is that the contract explicitly acknowledges that Shacknai has child-care obligations, and may not be available during the work-week as a result:

“It is expressly understood and agreed that the Executive may not be available for corporate matters during such times that he is providing care for his children.”

The contract provision goes on to say that “participation … in philanthropic, community education and/or charitable activities during the normal business week” will also be considered “in furtherance of the Executive’s duties of his employment…”

Our first thought was that this showed unusual, and unusually compassionate, flexibility in the face of what is presumably an extremely difficult time for Shacknai; none of the flexible working conditions were mentioned in an 8-K summarizing the agreement filed on June 30.

But in fact the agreement appears to have preceded both incidents at Shacknai’s house: It’s dated June 24, suggesting that the company was comfortable with this extreme form of executive flextime even in the ordinary course of business.

And it turns out that some of the flextime provisions have been in his contract for a while, in one form or another. For example, while his original contract (filed with the Medicis 10-K in August 1996), contemplated that he would “devote substantially all of his time, energy and skill during regular business hours to the performance of the duties of his employment,” an amendment on April 1, 1999 (filed with a 10-Q on May 15, 2001), specified that only 2-1/2 days of the workweek would have to be in the office. The amendment continues:

“The Executive shall be available to meet with Company personnel, attend telephonic meetings and participate in other corporate matters, as appropriate, from his home during the remaining periods of the normal business week, provided that the Executive’s children are not in his care at such time. It is expressly understood and agreed that the Executive shall not be available for corporate matters when his children are in his care. The Executive has elected to apply his vacation time to facilitation of this amended schedule.”

The provision was further modified to something much like the current form in December 2005 (and filed with an 8-K on January 3, 2006), with a four-day week and similar child-care and philanthropic-endeavor language.

If all the flexible working conditions suggest that Shacknai isn’t giving Medicis plenty of attention, consider this Wall Street Journal report on the quarterly earnings webcast Medicis held on Monday: Shacknai told investors he’s been in daily touch with work even during the turmoil of the last few weeks, and will return to his normal schedule soon.

And there’s apparently a lot of business to mind. Even amid news of the deaths at Shacknai’s house, there have also been M&A rumors, mostly stemming from a WSJ article on Monday reporting that Valeant Pharmaceuticals (VRX) had approached Medicis about acquiring it.

Under Shacknai’s contract, that could trigger a sizable payout if he’s eased out after a sale: 3x salary and bonus, lifetime health benefits, $225,000 over three years for administrative support and services, and more.

Plus, on the same day that Shacknai signed his new contract, the company established a new executive pension program, effective retroactively back to June 1. It’s not yet clear exactly how big Shacknai’s pension will be under the plan, but he’s eligible for an annual payout of up to 50% of his average earnings each year for 20 years, and the 10-Q shows the company has already accrued a $33.8-million liability for an unspecified number of participants in the plan.

That said, Shacknai couldn’t claim the full pension immediately: He and the others earn a sixth of it each year through 2016 — or all at once if the company is acquired.

Image source: Coronado Common Sense blog

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