No More "Single Trigger" Payouts -- At New Merck

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This follows up my post of last night.

Given the truly obscene Ex-CEO Fred Hassan parachute payment debacle (about $178 million -- and growing, at $7.74 million for every additional dollar above $37 per share that New Merck's common stock reaches, on the NYSE), it appears the New Merck board has revamped change of control payouts, for 2010, and beyond.

There will be no more "single trigger" payouts. All are "double trigger," starting in 2010. A double trigger (no RSU, PSU or option vesting unless New Merck undergoes a (i) change of control, and (ii) a firing of the covered executive occurs within 12 months of closing). By my calculations, such a double trigger -- as opposed to Hassan's single trigger -- (coupled with naming him "CEO-Emeritus" (or some such) for 12 months, post-merger) would have recouped close to $100 million of the money Ex-CEO Hassan pocketed. And make no mistake -- he took it from the New Merck shareholders.

As the surviving entity, New Merck (which is simply Schering-Plough, renamed) ought to publish the results of the survey on executive pay it undertook in 2009 -- CEO Hassan's last year at the helm.

Okay -- now let's get granular, here -- to figure out just how horribly overpaid CEO Hassan was. Let's compare legacy Schering-Plough performance metrics (under Hassan) to legacy Merck performance metrics (under CEO Clark) from say 2003, to 2007:

From January 1, 2006 to December 31 2007, Merck stock went from a low of $31 to a high of $61 -- it doubled.

Same period, Schering-Plough (low to high): $17.20 to $17.40. Rose 20 cents.

Recall that MRK was about twice SGP's size -- that's a lot of NYSE-heavy-lifting.

As to the EPS measures -- Merck ("MRK") wildly outperformed Schering-Plough ("SGP").

EPS (Loss) 2007 -- MRK: $1.50 in 2007 -- SGP: ($1.04 LOSS).

EPS (Loss) 2006 -- MRK: $2.03 -- SGP: $0.71

EPS (Loss) 2005 -- MRK: $2.10 -- SGP: $0.12

EPS (Loss) 2004 -- MRK: $2.62 -- SGP: ($0.67 LOSS)

EPS (Loss) 2003 -- MRK: $2.94 -- SGP: ($0.06 LOSS)

This all gets redundant after a bit. . . but here goes:

MRK's Earnings [Expressed As A Multiple of Fixed Charges]:

2003|2004|2005|2006|2007

15X | 14X | 12X | 11X | 6X

SGP's:

0.4 | (0.3) | 1.6X | 5.1X

By its best coverage year under Hassan, SGP hadn't caught up to MRK's worst year, under Clark -- on interest coverage -- and it had several negative coverage periods. That is, SGP paid out MORE, in interest, and related fixed charges -- than it earned.

Remember, by 2006, MRK was pulling EARNINGS that regularly TRIPLED SGP's despite carrying a much bigger base. For all of this, CEO Clark earned less than a third (per year) of what that shine-ola salesman Hassan took from SGP.

And now the New Merck board revamps Clark's payout? Color me just slightly-chagrined. It is a good idea -- it is just too late. And again, do remember to thank Hans Becherer (at right) for all of these deplorable Hassan pay excesses.