The CEO of Valeant Pharmaceuticals (VRX, Financial), Joseph Papa, has dropped almost $5 million on 202,000 shares of the company, according to insider filings.
Papa bought the stock on June 10, paying $24.48 per share. Valeant's stock price has fallen almost 90% over the past year and has traded for as high as $264.
Investors began shedding the stock when the company encountered short-seller accusations, criticism from politicians over its drug pricing scheme and accounting irregularities.
At a Columbia University dinner GuruFocus attended in April, Bill Ackman (Trades, Portfolio), Valeant's largest stakeholder and a panel speaker, noted that the new pay structure for Papas, who replaced former CEO Michael Pearson, would tie heavily to stock price performance.
According to an 8-K filing, Papa will receive a base salary of $1.5 million, which could rise to $2.25 million including bonuses. But equity compensation makes the difference. Papa receives $10 million in stock options as he achieves certain stock price thresholds. If he can achieve the superhuman $270 price target, he receives the ultimate prize of $500 million.
The heavily stock price-based compensation may encourage the short-termism that harmed the company under Pearson, but it would also boost Ackman’s ailing Pershing Square hedge fund, which is down 18% for the year through May. Papas’ purchase of shares may also indicate confidence that the company’s shares may reach his goals, or at least go up from around the five-year low where they currently sit.
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