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Amazed at Merck CEO's $24M Pay Packet? Wait 'Til You See His Pension

Former Merck (MRK) CEO Dick Clark's compensation rose 55 percent to $25 million in 2010, a year in which the company's stock stagnated and its profits sank due to the cost of acquiring Schering-Plough. Oddly, Clark's pay increase was granted in part "given Mr. Clark's expected future contributions and leadership in integrating the combined company," even though he stepped down from the post at the beginning of 2011. Here's the chart (click to enlarge):

Merck's investors didn't get any richer. While MRK trod water all year at about $36 as the company digested Schering, the S&P 500 rose 13 percent. Merck's sales only went up because of the Schering acquisition. In fact, Merck's annual report uses a curious sleight of hand on page 53 to make it look like the drugs that came from Schering put in spectacular sales performances in 2010. But a footnote says:

Sales of legacy Schering-Plough products reflect results for 2010 and the post-Merger period in 2009.
That post-merger period started Nov. 4, 2009, so the 2010 product sales are being compared with just two months' of sales in 2009.

The Schering buy -- driven by Clark -- also contained a $500 million timebomb which went off Friday: Merck must pay Johnson & Johnson (JNJ) that amount to appease J&J for breaking their agreement over the $2.7 billion anti-inflammatory drug Remicade.

New CEO Ken Frazier's compensation is much more modest than Clark's. He made only $9.4 million last year. But Clark's impending retirement -- he turned 65 on March 7 -- will likely trigger another eye-popping payout. He has accumulated pension payments of $33.3 million and deferred compensation of $15.8 million.

UPDATE: A Merck spokesperson responded via email:

The way you characterize Mr. Clark's pension is inaccurate. Mr. Clark retired the CEO role due to turning 65, but he remains fully employed by the company as its chairman and will not be eligible to draw his pension until he fully retires from the company. It is inaccurate for you to say 'impending retirement.' As Chairman, effective Jan. 1, 2011, his combined base and bonus was reduced by 28%.

Your reference to how we reported 2010 sales in the 10-K makes no sense. Merck has been reporting supplemental combined non-GAAP sales figures adjusted to reflect legacy Merck and legacy Schering-Plough results since the merger was announced. To say "2010 product sales are being compared with just two months' of sales in 2009" is just plain wrong. See any of the quarterly sales and earnings news releases and this will be very clear.

But then the same spokesperson confirmed in a subsequent email that the 10-K filing does compare two months' of 2009 sales with 12 months' of 2010 sales:
Merck and Schering Plough completed the merger on Nov. 3, 2009. During 2010, Merck provided additional information in each quarterly sales and earnings news release that showed revenues of the company's product sales on a comparable basis to periods prior to the merger. This information was provided to help investors better understand the company's products and overall business performance.
And, for what it's worth, Merck's 10-K states that the 2009 sales numbers reflect only the last two months of the year on page 2.


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