Merck's Frazier joins top-paid pharma CEOs with a $25M package

Thanks to a big stock grant, Merck & Co.'s ($MRK) Kenneth Frazier vaulted to the highest echelons of pharma CEO pay last year. With a pay package valued at more than $25 million, Frazier beat out Pfizer's ($PFE) Ian Read and Johnson & Johnson's ($JNJ) Alex Gorsky--even if he fell far short of Regeneron ($REGN) chief Len Schleifer.

Frazier's executive team all saw their compensation packages grow in 2014, too, partly because of a new method for valuing long-term stock grants. But the entire group's cash incentive pay also jumped significantly. And for the second year in a row, R&D chief Roger Perlmutter got a cash bonus of $500,000, while brand-new CFO Robert Davis took down a $2.5 million signing bonus.

At $1.5 million, Frazier's base salary has remained steady for several years running. But his cash incentive pay more than doubled year-over-year, to $3.34 million. Frazier and his team beat their goals for sales, earnings and pipeline milestones, Merck's proxy says, pushing the incentive payout well past the target number. In 2013, the company's performance fell short, so payouts were much lower, the proxy says.

Options-wise, Frazier's award slipped a bit, to $3.3 million. And his increase in pension and deferred compensation came in at $3.6 million, almost four times the number recorded in 2013--but down about half a million compared with 2012.

And then there was that stock grant. At $13 million-plus, it's a big leap from 2013's $5.1 million. Given that Merck beat its goals, Frazier's stock grants came in slightly above his target amount, the board said. In 2013, not so much. Plus, Merck reworked its long-term incentive plan, which changed the way the company values those stock awards, and that accounts for a big chunk of the increase over 2013.

But other U.S.-based companies made the same accounting change, so while year-over-year comparisons might be tricky, CEO-to-CEO comparisons aren't so different from the usual. J&J's Gorsky saw his stock awards grow to $9.5 million--a $3.5 million leap--and his options came in at $4.2 million, up from $2.7 million in 2013. Bristol-Myers Squibb ($BMY) chief Lamberto Andreotti--always among the highest-paid in the industry--won an $18 million stock award. And Gilead Sciences ($GILD), which joined the pharma top 10 for the first time, awarded $8.4 million in stock grants to its CEO, John Martin, up from $5 million in 2013.

At Merck, 2014 was far from the growth year that Gilead had. But that doesn't mean Frazier and his team didn't have a big year. They reworked the company with some major M&A and cost cuts, pushed a half-dozen drugs to FDA approval, and offset sales declines with growth from some new meds.

Merck sold off its consumer health business to Bayer for $14.2 billion, and turned around to buy the anti-infectives specialist Cubist for more than $9 billion. It amped up in hep C with a deal for Idenix Pharmaceuticals--$3.8 billion--a move that could help make Merck's cocktail competitive with Gilead's. Merck pushed forward with its restructuring, which is designed to squeeze $2.5 billion out of annual costs by the end of this year. And it won FDA approval for a first-in-class cancer immunotherapy, Keytruda, quickly heralded as a potential blockbuster.

- check out Merck's proxy

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