This has been a bumper year for John Hammergren. The CEO of McKesson, a big American wholesaler of drugs and other health-care supplies, Hammergren pocketed total compensation of $52 million in the year to March, a nice raise from the $46 million he received in 2011.
Predictably, this prompted a hostile reaction from shareholder activists. They are urging not merely a "no" in the "say on pay" vote at the firm's annual meeting later this month, but also a vote against Hammergren's re-election to the board.
The campaign is being led by the pension fund of Change to Win, a trade union. It describes Hammergren's pay package as "one of the most exorbitant" among Standard & Poors 500 companies. It is especially unhappy with his pension, which accounted for $24.2 million of his latest pay package. Hammergren's total pension is now $159 million, more than any other current boss's.
Last year, only 63 per cent of shareholders voted in favour of McKesson's executive pay. Given the reluctance of many institutional shareholders to vote against management, this amounted to an expression of deep discontent. According to the Manhattan Institute, a think-tank, at the 250 largest publicly traded American firms, so far this year only seven per cent of shareholder resolutions have succeeded in getting a majority of votes, the lowest since at least 2006. Only two of these firms have lost a say-on-pay vote.
McKesson says that, in response to the criticism, it has made improvements to its pay structure, including reducing total direct compensation and the value of share options. The company also argues, however, it is seeking to give its bosses strong incentives to deliver long-term value to shareholders, pointing out 92 per cent of Hammergren's pay is performance-related.
Indeed, on this score his pay is not outrageous, at least by the generous standards of corporate remuneration. His pension, for example, has been accumulated in the course of 14 years, which puts it in line with those given to bosses of other big companies, who often serve shorter terms. Its sharp rise in value in 2013 was largely due to changes in the interest-rate assumptions made by actuaries.
When Hammergren took over in April 2001, McKesson's share price was $27. Now it is $115, a rise of about 325 per cent in a period in which the S&P 500 index rose by only 40 per cent. His combined rewards through the period represent about three per cent of the $19-billion increase in the company's stock-market value.
For many people, no amount of performance can justify such extravagant compensation. Hard-nosed investors may see it as a reasonable deal, however, and wish other handsomely paid bosses delivered such healthy returns.