Baxter International has prohibited cash severance payments that exceed three times the total of an executive’s salary and target annual bonus opportunity without shareholder approval.
The company disclosed the new policy as it restructures the business and cuts staff while looking to rebound from a multibillion-dollar net loss for 2022.
Deerfield, Illinois-based Baxter is the world’s 10th largest medical device company, according to the Medtech Big 100 list.
That ranking was based on Baxter’s $12.78 billion in revenue for 2021; the company last week reported 2022 sales of $15.1 billion and a full-year loss of $2.4 billion. That loss was primarily due to a $3.1 billion charge related to Baxter’s purchase of Hillrom.
Baxter announced the executive severance policy yesterday while naming presidents for its vertically integrated global business units. The company last week announced layoffs as it restructures the business. In January, the company disclosed plans to spin off its renal care and acute therapies units as an independent, publicly traded company.
Details of Baxter’s new severance policy
With all that going on, the Baxter board’s Compensation Committee adopted the new severance policy on Feb. 13.
“Baxter will not enter into any new employment agreement or severance agreement with an executive officer or establish any new severance plan or policy covering an executive officer that provides for cash severance benefits exceeding 2.99 times the sum of the executive officer’s base salary plus target annual bonus opportunity, without seeking stockholder ratification of such agreement, plan or policy,” the company said in a filing with the Securities & Exchange Commission.
Those cash benefits include payments in connection an executive officer’s employment termination, payments for non-compete agreements, payments above or outside the company’s plans or policies, and payments to offset related tax liabilities.
Baxter clarified that cash severance benefits don’t include:
- Stock awards granted under stockholder-approved plans before an executive’s termination;
- Vested employee benefits like retirement benefits or deferred compensation;
- Non-cash benefits like perks, insurance, disability, health and welfare plan coverage and other non-cash benefits generally available to other employees;
- Earned but unpaid bonus for any completed performance period required to be paid under any Baxter plan or policy;
- Interest required to be paid under any Baxter plan or policy between an executive officer’s termination date and payment date;
- Accrued and unpaid base salary or vacation pay through an executive’s termination date;
- And reimbursement for valid expenses before termination.
Baxter CEO’s severance agreements
Baxter’s top executives would receive severance payments equal to double their base salary and target annual incentive if they’re terminated following a change in control of the company.
That would be worth about $6.9 million for Baxter CEO, President and Chair José Almeida, according to the company’s most recent proxy filings.
However, his total payments and benefits would be worth $34.7 million when including accelerated vesting of equity awards ($25.6 million) prorated annual incentive payments ($2.1 million), health and welfare benefits coverage ($40,000) and outplacement expenses ($50,000).
If the Baxter board fired Almeida without cause, his payout would be limited to severance, prorated annual incentive payments and health and welfare benefits coverage, totaling $9.2 million.
Baxter calculated Almeida’s total compensation in 2021 as $15.6 million. That’s 337 times more than median Baxter employee’s $46,351 in total compensation, the company said.
Those calculations do not include the approximately 10,000 Hillrom employees that joined Baxter in December 2021.