This discrepancy is most apparent when one compares official descriptions of executive performance with what the Fortune reporters found. To illustrate, consider the official descriptions of the performance of former Pfizer CEOs Hank McKinnell and Jeffrey Kindler in the respective years in which they were forced out.
"Hank" McKinnell -2006
Mr McKinell was forced to retire in 2006. The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.
The 2006 Pfizer proxy statement explained how the Board of Directors' Compensation Committee assessed Mr McKinnell's performance,
The Committee does not rely solely on predetermined formulas or a limited set of criteria when it evaluates the performance of the Chairman and CEO and the Company's other elected officers.
In 2005, the Committee considered management's continuing achievement of its short and long-term goals versus its strategic imperatives, including Dr. McKinnell's objectives which are shown below:
• Achieve specific revenue, EPS, operating cash flow per share, and merger-related synergy goals
• Effectively communicate strategy and financial results to increase shareholder value
• Deliver more new medicines more quickly to patients, through industry- leading R&D productivity and significant in-licensing activity
• Adapting to Scale
• Promote new directions in health and wellness
• Shape a positive environment for better healthcare
• Developing People, Talent, and the Organization
The Compensation Committee then assessed McKinnell's performance thus:
Financial and merger synergy goals
Overall, the financial targets, which reflected a significant stretch for the organization given the dynamic business environment and the loss of exclusivity for certain key products, were exceeded.
Communicate effectively
However, given the performance of the Company's stock price in 2005 when compared to prior years, the Committee felt that the goal of effectively communicating strategy and financial results to increase shareholder value was not met.
More medicines more quickly
All R&D productivity and licensing goals were met or exceeded, with, notably, five products under priority review at the FDA — an industry first. As the R&D organization continues to establish the industry standard in productivity, the Committee determined that performance against this objective significantly surpassed expectations.
Adapting to scale
In 2005, initiatives related to Adapting to Scale resulted in twice the cost reduction that had been estimated for the year, giving a very strong start to the Company's efforts to reduce the cost base and streamline the organization.So,
the Committee believes that overall performance significantly surpassed the expected outcomes for this objective.
Promote new directions
In promoting new directions in health and wellness, Pfizer's newly launched Healthy Directions program for U.S. based colleagues far exceeded expectations.... the Committee determined that these goals were significantly exceeded.
Shape a positive environment
The Company is also leading efforts to rebuild trust in the industry and large companies in general.So,
Overall, the Committee believes that the Company surpassed expectations of performance against this particularly challenging objective.
Developing people, talent, and the organization
With respect to the final objective for 2005 — Developing People, Talent, and the Organization — the Committee recognized that senior leadership of the Company has been instrumental in developing and implementing new People & Talent strategies related to long-term development planning for key talent, enhancing leadership skills for all 'people managers', and enabling Pfizer to become a global leader in attracting, developing, and engaging a diverse workforce that delivers superior business results. As a result, the Committee determined that the goals of this objective were surpassed.
So, according to the Committee, Mr McKinnell's performance was excellent in all areas but one.
Accordingly, based apparently on this stated "General Compensation Philosophy,"
The Committee believes that compensation paid to executive officers should be closely aligned with the performance of the Company on both a short-term and long-term basis....
So the present value of Mr McKinnell's total compensation was estimated to be $15,880,989.
Jeffrey Kindler - 2010
Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.
However, in the company's 2010 proxy statement, the Compensation Committee made this general assertion:
The Committee believes that Mr. Kindler's leadership was a significant factor in the continued progress made by Pfizer in 2009 in strengthening the foundation for future growth and long-term success.
Then, Mr Kindler, like Mr McKinnell, was assessed against specific performance standards thus:
Financial Results
Despite the unprecedented challenges in the global macroeconomic environment and other challenges, the Company exceeded the target goals for 2009 set by the Committee for annual incentive purposes
Enhancing the Product Portfolio
Under Mr. Kindler's leadership and oversight, during 2009 we improved the product portfolio (early stage through late stage),...
People Management
In 2009, we met or exceeded each of our people management goals,...
Business Model Implementation
the Company remains on track to meet the various research and development goals announced in March 2009. Mr. Kindler also further strengthened the Company's leadership team through strategic hiring and the redeployment of key senior leaders across the Company.
Wyeth Transaction
During 2009, we devoted significant attention to the acquisition of Wyeth. Under Mr. Kindler's leadership, we finalized negotiations, gained regulatory approval and closed the $68 billion acquisition of Wyeth, all in an expeditious manner. During the year, Mr. Kindler oversaw a detailed review of Wyeth and its businesses and the development of an integration plan,...So,
With the completion of the acquisition under Mr. Kindler's leadership, Pfizer is one of the largest biopharmaceutical companies in the world, as well as a more diversified company in the health care industry.
Industry Leadership
During 2009, Mr. Kindler was actively involved, through both Pfizer and external organizations, in developing and advancing U.S. and global public policies that serve the overall interests of our Company and our shareholders
In summary,
In view of Mr. Kindler's accomplishments noted above and the fact that he achieved all of his objectives and exceeded most of them, the Committee believes that Mr. Kindler successfully led the Company toward the achievement of its strategic goals during 2009....
Based on the same general compensation philosophy noted above, Mr Kindler's total compensation in 2009 was $14,898,038.
Summary
Anyone who depended on these proxy statements to assess the performance of the Pfizer CEOs in 2006 and in 2010 would have likely concluded that both CEOs exhibited exemplary performance. These impressions would have apparently been sharply discrepant with the realities inside the company at those times.
Like the children of Lake Woebegone, we have frequently noted how almost all CEOs seem to appear "above average" or better to their boards of directors or trustees. The case of Pfizer in 2006 and in 2010 shows a board of directors which painted a grossly optimistic view of CEO performance to the public. In both years, these views would almost immediately clash with the fates of the particular CEOs. Now, based on the Fortune investigative report, these views seem even more overblown if not absurd.
This case, which again concerns the "world's biggest research driven pharmaceutical company," suggests one should be very skeptical about evaluations of executive performance in proxy reports. Proxy reports now appear to be a very cloudy window through which to view how corporations are really run. However, in the US, proxy reports have legal standing and are supposed to be sources of definitive information for stockholders and anyone else interested in the corporations that produce them.
Thus, the large organizations that dominate US health care may be even less transparent than they appear. True health care reform requires true transparency, and meaningful deterrence of propaganda disguised as fact.
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