Summary
This Form 8-K filing from Amgen Inc. (AMGN), dated March 13, 2008, details changes in executive compensation arrangements approved by the Compensation and Management Development Committee on March 11, 2008. The primary focus is on modifications to the Performance Award Program and the Executive Incentive Plan (EIP) for both past performance (2007) and future periods (2008-2010). These adjustments reflect the company's strategic priorities and market conditions, particularly in light of challenges faced by its erythropoiesis-stimulating agent (ESA) products.
Key Highlights
- 1Amgen's Compensation Committee approved awards of performance units for the 2008-2010 period, shifting the sole performance metric to the company's compound annual total stockholder return (TSR).
- 2The maximum payout for performance units in the 2008-2010 period was lowered from 225% to 200% of target, with the minimum TSR multiplier reduced from 50% to 0%.
- 3The committee also approved 2007 annual cash incentive awards under the EIP, noting that actual payouts were below target maximums due to company performance and the exercise of negative discretion.
- 4For 2007 EIP awards, payouts were generally reduced from the 'GMIP Calculated Amounts' due to challenges with ESA products, though specific executives received adjustments based on individual performance and role transitions.
- 5Performance goals and maximum awards for the 2008 EIP were established, with a performance goal based on 'Adjusted Net Income' as defined in the filing.
- 6Named executive officers, including Kevin Sharer (CEO), Fabrizio Bonanni, Robert Bradway, George Morrow, and Roger Perlmutter, received grants or awards under these plans.
Frequently Asked Questions
The key changes involve the Performance Award Program and the Executive Incentive Plan (EIP). For the 2008-2010 performance period, the Performance Award Program will solely rely on Total Stockholder Return (TSR) as the performance metric, with adjusted maximum and minimum payouts. For the 2007 EIP awards, the company exercised negative discretion, resulting in payouts below target maximums due to performance challenges, particularly with ESA products. For 2008, new performance goals and maximum awards were set for the EIP based on 'Adjusted Net Income'.
Amgen cited a lack of visibility in setting three-year financial measures due to ongoing challenges with its erythropoiesis-stimulating agent (ESA) products. The shift to TSR aims to directly align executive compensation with stockholder value creation and reward stock price growth, while also penalizing stock price shortfalls.
The 2007 EIP awards were determined based on company performance against specific measures (revenue growth, adjusted EPS growth, pipeline delivery, etc.) and individual executive performance. The Compensation Committee exercised 'negative discretion,' meaning they could award less than the maximum. Payouts were generally lower than the calculated amounts derived from the Global Management Incentive Plan (GMIP) composite score (approx. 118%) due to the challenging year, primarily impacted by ESA product issues. The CEO recommended, and the committee agreed, to significantly reduce awards for himself and some long-term executives, while adjusting awards for others based on their specific roles and contributions.
For 2008, 'Adjusted Net Income' is defined as net income computed in accordance with U.S. GAAP, with potential adjustments for significant gains or losses from changes in accounting principles, amortization of acquired intangible assets, expenses associated with acquired in-process R&D, and retention/severance expenses related to acquisitions.