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Not Your Ordinary Gold Watch


To many shareholder advocates, Pfizer Co. (PFE) and Henry A. McKinnell Jr., its chairman and CEO, are model corporate citizens. On McKinnell's watch, Pfizer ditched poison pills and other takeover defenses and decreed that a director who fails to win a majority of shareholder votes must offer to resign. It provides detailed disclosure of executive perks and is one of few companies that base stock bonuses on five-year performance, not short-term targets. Pfizer "is not one of the bad guys," says pay analyst Paul Hodgson of The Corporate Library, a governance research firm.

That won't count for much in the 2006 proxy season. Labor and public pension funds are making McKinnell a poster boy for extravagant pay. Unions and other shareholder groups will blast boardrooms with pay proposals this year, hoping to lend heft to the Securities & Exchange Commission's push to unmask executive pay, perks, and pension benefits. And McKinnell will be Exhibit A, thanks to pay studies that say he has the fattest retirement package among sitting CEOs of companies in the Standard & Poor's 500-stock index. Both The Corporate Library and Harvard Law School professor Lucian A. Bebchuk estimate that McKinnell, who is to retire in 2008, will get $6.5 million a year for life. Bebchuk's paper pegs McKinnell's total pension payout at more than $71 million.

Contrast that with McKinnell's 2005 salary of $2.3 million and Pfizer's recent sluggish performance, and some labor activists see a problem. "The goal of pension benefits is to provide for a secure retirement; it's not supposed to be a wealth-creation vehicle," says Brandon Rees, research analyst in the AFL-CIO's office of investment. The labor federation wants to require New York-based Pfizer to get shareholder approval for any senior executive pension benefits that exceed the officer's final average salary.

McKinnell's pension package was pumped up in part by $5.8 million in performance-based shares. The awards, which vested in 2004, had been granted before he became CEO in 2001. Pfizer says those stock plans "were approved overwhelmingly by shareholders and were in place during a period of tremendous success for the company between 1993 and 2004." In 2000, McKinnell and the board saw how stock awards could balloon retirement pay and decided not to count future grants in the pension formula. But earlier grants, including McKinnell's, were left in.

Now, Pfizer's board has agreed to get shareholder approval before letting top executives collect pension benefits that exceed 100% of their salary and bonus. Many companies have separate retirement plans for executives that typically pay 60% of salary and cash bonus.

The AFL-CIO says executives shouldn't collect more in pension than in salary. And it zings Pfizer's board for not removing McKinnell's stock awards from his pension or asking him to give up some retirement pay. The company says that would be unethical and possibly illegal. The AFL-CIO counters that workers must often give up promised benefits, too.

Labor has other issues with Pfizer. The company was a member of a coalition that backed President George W. Bush's drive last year to create private accounts for Social Security. "It's ironic that the CEO with the largest guaranteed pension is advocating conversion to a risky Social Security privatization plan," says Rees.

But other big investors are restless, too. Pfizer's stock is down 46% since McKinnell became CEO five years ago, compared with the 27% slide in the Amex drug index. That has led Connecticut Treasurer Denise L. Nappier, who oversees the Connecticut Retirement Plans & Trust Funds, to question the $4 million cash bonus McKinnell got last year. "Is this really pay for performance?" she asks. Pfizer may be making all the right moves. But it still could have a hard time convincing shareholders that McKinnell's $71 million payout is right.

By Amy Borrus, with Amy Barrett in Philadelphia


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