Is Actavis’ new CFO Really worth $22 Million?

November 14, 2014

When it comes to executive compensation, do the board members and compensation consultants who dole it out ever think there’s such a thing as too much of a good thing? That’s the question we found ourselves asking after reading the 8-K that Actavis plc filed late Wednesday.

If you are a footnoted regular, you would know that we pay close attention to filings that come in after the close of the markets, especially on Fridays. So when Actavis, the Ireland-based pharmaceutical giant Actavis arrived a little after 5 p.m. on Wednesday, we sent out a quick note to our subscribers, highlighting what seems like incredibly generous compensation for incoming CFO Maria Teresa Hilado. In fact, we were pretty surprised that this wasn’t filed late on a Friday, given the numbers involved.

Hilado, who is leaving her job as Pepsico’s Treasurer to join Actavis in December stands to make as much as $22 million, based on our reading of the 8-K. Of course, since Actavis didn’t include the employment agreement, there’s some guess-work involved in getting to that number. Here’s how the company described the compensation in the filing:

“Ms. Hilado’s offer letter with the Company provides for (i) a starting annual base salary of $545,000; (ii) beginning in 2015, eligibility to participate in the Company’s annual cash incentive plan, with a target bonus opportunity equal to 100% of base salary; (iii) a new hire long-term incentive equity grant with a target value of $5,730,000, consisting 75% in value of performance-share units, the terms of which were described in Item 5.02 of the Company’s Current Report on Form 8-K filed on July 3, 2014, and 25% in value in options subject to vesting in equal annual installments over a five-year period; (iv) a one-time award under the Company’s merger success award plan, to be settled in cash or Company ordinary shares of an equivalent fair market value (in the discretion of the compensation committee), with a target value of $5,000,000 and a maximum award value of $10,000,000, based on the Company’s achievement of pre-established goals during the performance period of July 1, 2014 through December 31, 2017; (v) a sign-on bonus of $3,000,000, payable in two equal installments on March 15, 2015 and on the first anniversary of Ms. Hilado’s hire date (subject to repayment under certain circumstances); (vi) a sign-on grant of restricted share units valued at $3,000,000, to vest in four equal annual installments; and (vii) eligibility to participate in the Company’s deferred compensation plan.”

We would like to point out that much of Hilado’s promised payouts are linked to equity, with its potential downside, and to performance goals spread out over periods of up to five years.

Actavis has a history offering hefty amounts of money to its top executives. For instance, ahead of the July 4 holiday , the company filed an 8-K and buried below a bunch of disclosures related to its merger with Forest Laboratories that it was handing out “merger success” and related awards to seven top executives. The amount? Staggering payouts of up to $185.6 million.

One other thing caught our attention in the filing: while Actavis is based in Ireland via a so-called tax-inversion deal it did in 2013, the press release announcing her appointment notes that she will be based in Parsippany, NJ.

Over the years, we’ve written about payouts offered to dozens of newly appointed or promoted executives, including this story with mind-boggling potential payments of more than $29 million to newly appointed president of EBay Inc. unit PayPal Inc., Daniel Schulman.

Still, the $22million in potential payouts to Hilado have to be ranked among the highest compensation amounts promised to incoming executives in recent times. Once the employment contract is actually made public, it should be a bit more clear.

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