In that vein, here are some interesting bits from the article:
In this case, the board kept giving him more stock and more options. The premise of options is that they give nonfounders a sense of ownership in an enterprise, yet boards of directors at companies like McKesson hand them out liberally as compensation rather than a motivational tool. The company spells it all out in a document that by law it must file annually with the Securities and Exchange Commission. Called the proxy statement, it discloses what McKesson and other publicly traded companies pay their top executives. In 2011, McKesson awarded Hammergren $12 million in stock and another 300,000 stock optionsa reward the company valued at more than $7 million. The year before, it was 400,000 options and $11 million in stock. The proxy statement shows that Hammergren holds nearly 1 million options that have yet to vest on top of $129 million in McKesson stock.
As far as Im concerned, a board that keeps loading up its chief executive with more stock and options each year is, from a shareholder perspective, basically committing theft, says Albert Meyer, a former accounting professor who runs a money-management firm called Bastiat Capital. Its all legal, of course, but to Meyer you can tell if an enterprise exists for the benefit of shareholders or insiders by the number of options it awards its top executives. Options arent free; they dilute the worth of everyones shares. And the practice hurts more than the privileged few. Anyone who owns an index fund of the countrys 500 largest companies owns shares in McKesson, a Fortune 500 company. Its nothing short of a massive wealth transfer from the retirement accounts of middle-class Americans to a privileged few, hidden in the guise of stock-option programs like McKessons, Meyer argues.
Re. Hammergren's leadership failures:
By all accounts, Hammergren has done a topnotch job managing the companys core business: the delivery of prescription drugs and other medicines to hospitals, nursing homes, and large retail chains like Walmart and Rite Aid. Less impressive, though, have been his efforts to broaden the companys offerings, starting with the lucrative health-technology business. Hammergren seems to have a great personal interest in technology. He wrote (with Phil Harkin, according to the cover)
Skin in the Game, a book published in 2008 that explores ways technology is set to revolutionize health care. But whether this has translated into big wins for the company is another question.
A horrific job, one Wall Street analyst said of McKessons attempts to emerge as a tech leader in the health field. This is a company that has thrown billions of dollars at a health-technology unit that has missed its targets probably 80 to 90 percent of the time over the last 10 years. In December, the company announced it was pulling the plug on another of its big tech initiatives, declaring a billion-dollar do-over.
Equally disappointing, says a second analyst (both requested anonymity, fearing reprisals from the company), have been McKessons failed attempts to grow into a big player in the surgical-supply businessa natural growth area given the companys existing business.
Basically, they lost money for eight years, the second analyst saysuntil selling the business to a rival a few years ago. Another blow to the companys bottom line: the $442 million it has set aside to settle a class-action lawsuit that health plans brought against it, charging that McKesson was part of a scheme to drive up the price of prescription drugs. (Despite a settlement a consumer-health-care site describes as one of the largest in drug-litigation history, McKesson denied any wrongdoing.)
And finally, re. stock performance:
McKessons stock has performed well, despite these setbacks. Shares in McKesson jumped 22 percent during its most recent fiscal year, ending March 2011. That beats a 19 percent rise generally for health-care stocks and a 16 percent gain for the S&P. Its true, as the proxy statement claims, that shareholders investing in McKesson under Hammergrens tenure would have done very well financially. But then compare McKessons stock performance with that of its fellow behemoths. It placed 275th when Fortune, in its annual rankings of the countrys 500 biggest companies, looked at stock performance in 2010. The company fared better in a comparison of the 10-year performance of the countrys largest 500 corporations; the 7.7 percent annual return to McKesson shareholders between 2000 and 2010 ranked it 172nd. Still, that lagged behind the 11.3 percent annual return enjoyed by investors in AmerisourceBergen, one of McKessons main competitors in the drug-distribution business.
AmerisourceBergen is run by R. David Yost, who has served as the companys CEO since 2001. Like Hammergren, Yost earns the kind of outsize compensation package that had people taking to the streets this fall. A base salary of $1.26 million ($24,000 a week), $600,000 in stock awards, $1 million in stock options, a cash bonus of $3.5 million. His pension increased in value by $800,000, and he received $155,000 worth of perksmainly additions to his 401(k) but also a $10,000 car allowance and $315 toward airline club and other dues." All in, $7.4 million. Hammergren, by contrast, hasnt been paid less than $9 million a year since the late 1990s, before he became CEO, according to the companys proxy statement.
So while Hammergren has done fairly well, he certainly hasn't delivered spectacular performance.