John Hammergren, the CEO of health-care giant McKesson Corp., made $46 million last year thanks to one of the most generous executive pay packages in his, or any other business. Gary Rivlin of The Daily Beast has a breakdown of some of the outrageous provisions that contribute to Hammergren’s outrageous wealth including some figures that at least one compensation consultant calls “excessive.” When someone whose job is to craft multi-million dollar pay packages for corporate CEOs thinks you’re overpaid, you’re probably overpaid.
Hammergren is not the richest or even the highest-paid CEO in the world, but the structure of his compensation is raising eyebrows even in the already outsized world of the 1%. He took over McKesson, a firm that specializes in supplying presrciption drugs to pharmacies, in 1999 after a fraud scandal took out of many of the company’s top executives. Since that time he’s been paid nearly $500 million as the CEO and Chairman of the Board.
His salary is a modest $1.66 million a year, but he also gets annual cash bonuses of between $10 million and $13 million. His perks are many and lavish, including a company car and chauffeur, unlimited personal use of the firm’s corporate jet, and a generous pension plan not available to rank-and-file employees. (Their pension program was canceled in 1997.) Last year, McKesson contributed $13 million to Hammergren’s retirement fund, which if he walked away tomorrow, would be worth $125 million.
Then there’s the stock grants and options, a standard form of compensation at most corporations, but one that McKesson has used with reckless abandon. Hammergren owns $129 million in McKesson stock, plus another 1 million in options that have yet to vest. (In 2011, he received $12 million in stock and another $7 million worth of options in his pay.) Oh, but don’t worry. According to Rivlin, the company paid him $483,000 last year to make up for the dividends Hammergren didn’t earn because he doesn’t own the stock yet.
And then there’s a provision so outsize it’s drawn the attention of corporate-governance watchdogs like GMI, the research group that put Hammergren in the top spot of its latest survey of CEO salaries. If Hammergren loses his job due to a change in ownership, he receives an immediate $469 million payout, GMI found—giving him perverse incentive to see it happen.
In other words, despite all the money that McKesson gives him each every year, Hammergren stands to make even more if he can find a way to sell the company to someone else.
Whether or not he’s earning his keep is up to the shareholder to ponder, but Hammergren is also the Chairman of the Board. He may leave the room when they vote on executive pay, but he decides who was in the room — a group of guys who are pretty well paid themselves.
And if this little exercise in class warfare doesn’t already fire you up, remember that McKesson also give Hammergren $17,000 a year to pay for financial planning services. Keeping track of all that money is an expensive undertaking.