Teva paid top executives $330m while share price tanked

Karl Schultz credit: Elad Malkah
Karl Schultz credit: Elad Malkah

Over the past 10 years, Teva has paid its top five executives huge amounts while its share price fell 72%.

Nearly ten years ago a class action suit compromise was approved, in which Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA)agreed to start publishing on an annual basis the individual remuneration paid to its top executives. Prior to that the remuneration figures had been a secret for more than a decade. When the Dual Trading Law had come into effect, Teva had begun filing reports as required by an Israeli company trading on Wall Street, and consequently had not been reporting executive pay.

So for the past 10 years Teva has been publishing the overall cost for the five most expensive executives including executive remuneration, which includes basic salary, capital remuneration, bonuses and other expenses (car, relocation, accommodation etc.)

By examining the reports "Globes" has found that for the decade ending in 2022, during which the company underwent a huge crisis that threatened its continued existence, Teva paid these five top executives $330 million (NIS 1.2 billion at today's exchange rate) including $153 million in capital remuneration (47%).

In other words, on average there was an annual payment of $33 million (NIS 120 million) to this small group of five senior executives.

During this period between 2013 and 2022, in which Teva's share price fell 72%, the company changed three CEOs, and in recent years implemented an aggressive streamlining plan that included firing thousands of employees and closing down factories, and reported falling revenue after years of growth.

At the same time Teva became entangled with highly expensive legal proceedings for its part in marketing addictive generic opioid painkillers. The proceedings have ended with a compromise.

High management turnover

The $330 million paid by Teva in remuneration was divided between 21 senior executives, which indicates the high turnover in the company's management during this period. Less than half of them, by the way, are Israelis, two of whom still hold senior positions in the company - CFO Eli Kalif, and EVP International Markets commercial Mark Sabag.

The biggest earner by far was former CEO Kåre Schultz, whose salary cost was $107 million between November 2017 and the end of 2022 with the capital remuneration component making up $58.2 million. Even though he is no longer CEO, Schultz will receive $16 million during 2023 - $2 million compensation for ending his employment, $10 million capital remuneration and $4 million as part of his commitment not to compete with Teva.

The generous remuneration for Schultz can be explained by the dismal situation that Teva found itself in in 2017 and the strong desire of the company's board of directors to bring in a CEO with stature and experience in the world of pharma, who would drag the company out of the mud and restore investor confidence. The salary package he received included, among other things, a signing-on bonus of 20 $1 million, an annual base salary of $2 million, a bonus of up to $4 million per year, and equity awards through restricted stock.

Crisis and aggressive cuts

Teva sank into the worst crisis in its history, after announcing in 2015, under CEO Erez Vigodman, the acquisition of Allergan's generic division Actavis for $40 billion, in a deal designed to turn Teva into a giant company and secure its leading position in the industry.

The deal was enthusiastically received in the capital market, and Teva's stock then jumped to an all-time high. Among other things, the market liked the fact that the purchase of Actavis symbolized the end of Teva's attempt to take over its rival Mylan, which for its part opposed the attempt and worked to torpedo it.

Even before completion of the Actavis acquisition, doubts arose in the market regarding the generous price, against the background of changes in the world of generics. However, Teva completed the purchase in 2016 and in order to finance the transaction it took on a huge debt, which peaked at $36.9 billion.

Later Teva was trapped in a whirlpool from which it had difficulty escaping. Vigodman, had to leave, and after a few months of searching for a CEO, Schultz arrived, and led the company's streamlining plan. He presented an aggressive plan that included closing factories or selling them, laying off employees, halting the marketing of unprofitable products, stopping the distribution of dividends, and more.

Consequently, Teva's workforce has shrunk by dozens of percent and today stands at around 37,000, while the number of employees in Israel has decreased even more sharply, and is currently 3,240 employees. During Schulz's time, Teva's net debt fell substantially, to $21.2 billion (net) at the end of 2022.

Vigodman earned $21.2 million between 2014 and 2017 when he was CEO. His predecessor Jeremy Levin, served a relatively short time and his compensation was reported only for the year 2013, when he left the company - $7.2 million.

From 2023, Teva's CEO is Richard Francis, a former CEO of Sandoz and a member of the Novartis executive. Francis has signed a three-year contract with Teva, with an automatic option to extend it for a further three years. He will receive an annual salary of $1.6 million and bonuses of between 150% and 200% of his salary based on meeting targets. Capital incentives could reach $9 million - 70% in blocked shares on meeting targets and 30% in regular blocked shares as well as other incentives. Francis will also receive $5 million in blocked shares, redeemable after one year, as a signing-on fee. Like Schultz, Francis will manage the company from Israel and will receive financial assistance to help in his relocation.

In addition to the CEOs, other senior executives who received remuneration of over $20 million are VP Global Operations Carlo de Notaristefani, and President of Global R&D and Chief Scientific Officer Michael Hayden who earned $24.1 million and $21 million respectively. Hafrun Fridriksdottir who was R&D manager before the acquisition of Actavis earned $18.4 million between 2017 and 2020.

Among today's top executives Mark Sabag earned at least $15.5 million over the years, and probably more because he was not one of the top five executives in 2018 and 2019. CFO Eli Kailf has earned $11.3 million since 2019. His predecessor Michael McClellan earned $10.3 million and his predecessor as CFO Eyal Desheh earned $10.3 million between 2015 and 2017.

Published by Globes, Israel business news - en.globes.co.il - on April 27, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Karl Schultz credit: Elad Malkah
Karl Schultz credit: Elad Malkah
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