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Merck and Crony Capitalism: They have no shame
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At some point, even Redstaters will wake up and realize that this is obscene.


The theoretical underpinnings of the BushCo economy is that the market works and it will mete out punishment for companies who do not perform. This is in contrast to government, where bureaucrats are not responsible to anyone and can simply collect their paychecks while doing nothing.


Then something like Merck comes along and exposes the truth.  Left to itself, a capitalistic economy will turn into an oligarchic, crony capitalistic club, where insiders take care of each other, no matter what they do. And right now, this is George Bush’s America.


In September Merck had to recall its arthritis drug VIOXX and pull it off of the market.  It seems that the drug greatly increases the dangers of a heart attack, and the FDA estimates that it may have contributed to 28,000 heart attacks in the United States over the past several years (see the FDA website, or the study, at ) Of course, this event comes on the heels of Dr. David Graham’s Congressional testimony that his employer, the FDA, has virtually no ability to protect the public from unsafe drugs.


But from a purely economic standpoint, the shareholders of Merck suffered nearly as badly as the drug’s users.  Merck suffered a stock price drop of approximately $23/share, or nearly fifty percent of its value.  In the wake of this event, the company and its shareholders lost approximately $50 billion (yes, with a “b” as in “big bucks”).


This $50 billion dollar loss came out of the 401K plans of everyday people.  It reduces the opportunity for the “ownership society” that George W. Bush wants us to enjoy.  It took $50 billion out of the stock market, where George Bush wants us all to invest our Social Security pensions.


But to Merck management, this was simply another opportunity for the pigs to feed at the trough.  As a result of this fiasco, Merck is now considered to be “undervalued” and a possible takeover target for other drug companies.  So the company, acting through its board of directors, adopted a multi-hundred-million dollar golden parachute plan for upper management.  As stated in the company’s SEC filing, this plan grants special severance benefits to approximately 230 members of current management. If Merck is ever taken over by another company, and if, as a result, any of these top executives loses his or her job, or is demoted, then they receive a special cash payment. The exact payment will vary by position, but the top part of upper management will receive a payment equal to three times their base salary, plus three times their targeted annual bonus. (The targeted annual bonus is the bonus that the executive would receive if he or she achieved every one of their goals and objectives for the year.  Merck’s Compensation Committee states that it awards bonuses to promote “the Company’s communicated goal of being a top-tier growth company.”  Suffice it to say, the loss of $50 billion in market value was probably not on anyone’s goals list.) In addition, they will continue to be covered by company health and dental benefits for three years, all of their stock options will vest immediately, and they will receive “enhanced retirement benefits.”


For the top five executives at Merck, this will mean a payout of $22.8 million dollars, just for their salary and bonus payments. CEO Ray Gilmartin will himself receive a payout of approximately $10 million. Surely, it is a good thing that these poor people will not have to pay for their own health insurance for the subsequent three years. The exact figures are not available for the cost of this program for all 230 covered executives, but conservative calculations peg it at over $100 million dollars.  


In its SEC filings disclosing this plan, Merck’s board states that it has adopted this plan “in recognition of the importance to the company and its shareholders of avoiding the distraction and loss of key management personnel that may occur in connection with rumored or actual fundamental corporate changes.”  Ray Gilmartin was paid $3 million in salary and bonus in 2003.  One might expect him to do his job, without being distracted, even without this special plan.  (Not surprisingly, Ray Gilmartin contributed the maximum $2000 to the reelection campaign of George W. Bush in 2004, and has donated over $83 thousand dollars to Bush since 1999.)


To sum up the tally, in George Bush’s ownership society, 28,000 people had heart attacks.  Investors lost $50 billion dollars. The top management at Merck received a security blanket, to protect them against distraction, of over $100 million.  And a major Bush contributor received a promise of over $10 million, plus three years of continued health insurance.  As Warren Buffet said, class warfare has already happened.  The rich won.