Joe Papa Gets Paid(?)

If a tree falls in the woods, does it make a sound?

If Valeant’s stock falls to $11 per share, did he really get paid?

The WSJ ran an article yesterday detailing the 2016 compensation of Valeant’s CEO Joe Papa.  I suppose the Editor’s thinking ran something like this: 1) its proxy season, 2) I’ll task an intern to find high CEO compensation even though the company’s stock price is low, 3) provoke reader outrage, 4) bring in the eyeballs, and 5) … profit?

Seems a decent strategy and allows abundant storylines.  It teases with envy.  It challenges the scales of justice and that old yarn about “pay for performance.”  Mark this reader intrigued–they hooked me.

Of course, when I looked at the proxy, the evidence there made it difficult to sustain that “Valeant (VRX) CEO Joseph Papa made $63 million in pay last year, according to documents the former pharma darling filed Thursday with regulators.” (CNN)

Yes, p. 57 does show that neat table with the Total Compensation figure — $62,717,846.  Case closed, right?

Perhaps, if you are that brand of journalist who tweets, baits clicks, and makes myths.

Yet, in this case, the proxy notes reveal some truths that may be even more interesting than standard fiction.

Of the $62.7 million, $8 million was “to compensate [Papa] for equity-based compensation he forfeited in connection with the termination of his employment with Perrigo.” (54)

$52 million of his compensation was comprised of stock and option awards.  And there are three components: PSUs (performance stock units), RSUs (restricted stock units), and options.  All vest at various intervals over the four remaining years of Papa’s current contract.

Interestingly, the 933,416 PSUs (valued at $29.8 million) “will vest on the fourth anniversary of the commencement date based on the achievement of the following share prices… : (a) if the share price on the vesting date is below $60, none of the PSUs will vest…” (54)  Suffice it to say that a share price of $60 is a long way from today’s $11.

The 373,367 RSUs (valued at $12.1 million) “will vest on the fourth anniversary of his commencement date subject to Mr. Papa’s continued employment through the vesting date…”  Four years is a long time in public equity markets, but suffice it to say that $VRX needs a much higher stock price than today’s to reach the RSUs’ imputed value.

Lastly, the 682,652 options (valued at $10 million) “will vest as to 25% of the total award on each of the first four anniversaries following the commencement date, subject to Mr. Papa’s continued employment with the Company through the applicable vesting date.” (55)  Since the strike price on these options is $23.92, Mr. Papa again has some serious work to do to realize any compensation from these.

As an additional footnote, recall that “Mr. Papa was required to purchase $5,000,000 worth of Common Shares by no later than the first anniversary of his commencement date. Mr. Papa has satisfied this obligation.” (54)  Based on his disclosed share count (202,000), it seems Mr. Papa paid roughly $24.75 per share for his initial stake.  Papa’s first year of employment then was rather expensive for someone “paid” so much; that fickle Mr. Market dinged him roughly $3 million for his “show of confidence.”

All in all, I will not disagree–Mr. Papa will do very well for himself if Valeant’s stock price ascends above $60 per share.

Of course, if that price stays around here, or if it only manages to double in the next four years, it would seem that Mr. Papa was not actually paid his $62.7 million after all.

Disclosure: No position.


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