Overnight, New Merck filed a rather-stealthy SEC Form 8-K, in which it disclosed (in very turgid tax-lawyer speak) that the board's Compensation Committee has eliminated the IRS Section 280G "tax gross-up" payment provisions in Merck executives' golden parachutes -- as well as installed a "second trigger", in its stock options. The "double trigger" means that the executive must be involuntarily terminated without cause (as opposed to resigning voluntarily, like Ex-CEO Fred Hassan, Carrie S. Cox, Bob Bertolini, Brent Saunders, Tom Koestler and Tom Sabatino each did), within two years of a change in control event, before the options will instantly vest, and become exerciseable.
Both of these are responsible changes -- and may also, in part, be attributable to the outcry over financial executives' pay-packages, of late. However, given that New Merck is now footing the 280G tax bill (of perhaps an additional $43 million, on Ex-CEO Hassan's perhaps $205 million golden parachute), I think it fair to infer that the Ex-Schering-Plough payments -- probably near $600 million, all-in to the top six, ALSO had something to do with this change. [Remember, Patricia Russo, an Ex-Schering-Plough Compensation Committee board member, carried over to New Merck, afterall.]
Here is the filed Form 8-K, from last night:
. . . .Tax Gross Ups Eliminated: On February 15, 2010, Merck & Co., Inc. (the “Company” or “Merck”) amended its change in control plan to eliminate gross-up payment in the event that excise taxes are imposed under Sections 280G and 4999 (“280G Excise Tax”) of the Internal Revenue Code of 1986, as amended.
Previously, Executive Committee members employed by Merck Sharp & Dohme Corp. (“MSD”), a wholly-owned subsidiary of the Company, were provided with gross ups for 280G Excise Taxes imposed in the event of or threat of a change in control of the Company (or, until November 3, 2010, of MSD). The Compensation and Benefits Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) amended the Merck & Co., Inc. Change in Control Separation Benefits Plan (the “CIC Plan”) to provide that Executive Committee members will be treated in the same manner as other participating executives. That is, payments that become due under the terms of the CIC Plan will be reduced if doing so would result in the participant retaining a larger amount of his or her benefits as compared to receiving his or her full benefits and paying the 280G Excise Tax. Under the amendment procedures of the CIC Plan, this amendment will not apply if, generally, a change in control occurs before February 14, 2011.
Double Trigger Vesting of Options, RSUs Adopted: Also on February 15, 2010, the Board amended the Merck Sharp & Dohme Corp. 2007 Incentive Stock Plan (“MSD 2007 ISP”) to provide that options (other than certain performance options) and Restricted Stock Units (“RSUs”) granted thereafter generally will vest upon a change in control only if the grantee’s employment is involuntarily terminated without cause within 24 months following a change in control. Previously granted options and RSUs generally vest immediately on a change in control. If options and RSUs are not continued after the change in control, the prior treatment is unchanged. . . .
One small step at a time, I guess. As of the last day of trading of old Schering-Plough, here is what the "Top Six, newly-departed" were to receive -- but this number has risen as Merck's stock price has increased from about $32 to $37. For Mr. Hassan, the amount increases about $8 million, for every $1 increase in Merck's stock price. So add about $40 million to the below figures, for Mr. Hassan alone:
Ex-CEO Fred Hassan | $205
Ex-CFO Bob Bertolini | $117 million
Ex-EVP Carrie Cox | $52 million
Ex-EVP Brent Saunders | $51 million
Ex-EVP Tom Koestler | $54 million
Ex-GC Tom Sabatino | $55 million
Ex-Schering-Plough Top Six
To be clear -- I only updated Mr. Hassan's haul, not the other five, in the table -- but each of their hauls would probably rise about another 15 percent, if Merck stays above $37.