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Thursday, January 29, 2009

McKesson’s CEO Cashes In

They say you get what you negotiate, not what you deserve.

Well, here’s the proof from the cover story in last Thursday’s Wall Street Journal: How Some Firms Boost the Boss's Pension.

In case you missed it, this story focuses on an obscure formula that some companies use to jack up lump sum pension payouts for the top brass. The story prominently features John Hammergren, CEO of drug wholesaler McKesson.

If Mr. Hammergren had quit or retired last March, he would have been entitled to a lump-sum pension of $84.6 million, which the article claims is “among the highest for any U.S. executive.” And because McKesson used its own discount rate rather than the IRS-set rate, his pension would have included an extra $18.2 million.

Mr. Hammergren has reportedly also negotiated a few unusual pension boosters: “McKesson credits him with years he didn't serve, and also counts 150% of his annual bonus in the final pay calculation, instead of just the bonus he was actually paid.” See for yourself (on page 2).

Whatever. It’s a free market. Thanks to some sort of change in Federal disclosure rules, shareholders are now fully informed about the plan and can make their own judgments. Nonetheless, I’m still surprised that McKesson’s Board would go along with such “enhancements” to an already generous plan.

6 comments:

  1. At least I know where my company's fee for service payments end up.

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  2. No longer Fee For "Service" but Fee For Executives. Any manufacturer that does not take this to the negotiation table would not be doing due diligence.

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  3. Adam - You forgot to mention that he is also chairman of the board, so the fix in in. There is no oversight and top execs like hammergren can rig the system to their benefit. What makes me even more upset is the fact that the government pays so much of drug costs right now (as you wrote about last week). My tax dollars are paying for this obscene payout! No wonder people are getting cynical about big business. And maybe you should stop writing about how much "profit" that indpendent pharmacists like me make. I don't buy from mckesson and I certainly won't start now.

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  4. I was employed with them for 28 years and the best move I ever made was to dump them. They abandoned the pension program about 15 years ago as have many companies, but still good to go for under-perfomring executives. They have always had a culture of arrogance at the top and I see nothing has changed. They talk a good game, but actions speak louder than words. Too bad.....they have lots of good people in their ranks.

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  5. Compare that w/ AmerisourceBergen's "Scrimp-and-Save Dave". See http://www.businessweek.com/magazine/content/08_40/b4102054688363.htm.

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  6. Mckesson is a big player in the Electronic Medical Record battle.

    Their product for a hospital is about $60 - 80 million, one of the highest in the industry. yet McKesson has its hand out for government subsidies -- both to reimburse top executives and to subsidize their overpriced goods.

    This is exactly why the healthcare industry is so expensive.

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