UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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The purpose of this filing is to file the attached presentation regarding executive compensation practices, to be provided to shareholders by Valeant Pharmaceuticals International, Inc. (the "Company") on or after April 4, 2017, as part of the Company's shareholder engagement program.
IMAGE OMITTEDIMAGE OMITTED Valeant Pharmaceuticals Shareholder Engagement Executive Compensation Program
April 4, 2017
Agenda IMAGE OMITTED
• Introductions • Strategic Context • Highlights • 2016 Shareholder Outreach Efforts • Valeant’s Pay Practices • New 2017 Long-Term Incentive Program • New CEO’s Pay Package • 2016 CEO Accomplishments • Other Named Executive Officer (NEO) Compensation • Director Compensation Program Changes • General Discussion IMAGE OMITTED
1
2
Strategic
Context IMAGE OMITTED • The
last 18 months have been difficult for Valeant, its shareholders, and its employees. However, the Company
has successfully stabilized its businesses in 2016 and has a strong turnaround plan in place for 2017-2018
• Valeant has hired a new management
team including a new CEO, CFO, General Counsel, and several other key executives. Additionally, the Board
of Directors has undergone significant change with 11 of 13 current members joining the Board over the
last two years • The Talent &
Compensation Committee was also reconstituted with 3 of the 4 members joining the Committee in 2016.
The Committee focused on two primary initiatives: 1. Redesigning the executive LTI program which we
launched in 2017. A major input into this redesign was the significant shareholder outreach we conducted
leading up to the 2016 annual meeting (23 shareholders consulted) 2. Transitioning the management
of the company to our new executive team by implementing retention programs for existing executives and
new hire compensation packages to attract new talent • Going
forward we expect executives to come into line with the new LTI program • Valeant
maintains an executive compensation philosophy and program that is focused on the long term, pays for
performance while balancing appropriate risk taking, and incorporates shareholder feedback IMAGE
OMITTED 3
Highlights
IMAGE OMITTED • Mr. Papa’s
pay package reflects appropriate and customary terms for recruiting a sitting CEO at a major company,
is consistent on an annualized basis with the pharmaceutical industry median, and included a mandatory
purchase of $5M Valeant shares upon hire • During
2016, Mr. Papa’s leadership helped stabilize the business, reduce permanent debt and sell non-core
assets, rebuild the executive team, improve employee and sales force retention, and improve stakeholder
relationships. Valeant’s Board is fully supportive of Mr. Papa as the Company executes its turnaround
plan in 2017 - 2018 • In 2017,
Valeant implemented a new executive LTI program for its senior-most executives that is consistent with
pharmaceutical industry best practices (i.e., annual LTI grants, balanced LTI portfolio, etc.) • Valeant’s
pay practices are aligned with industry best practices in terms of change-in-control agreements, minimal
perquisites, stock ownership requirements, etc. • The
Company recently approved significant director pay reductions that are aligned with the “new”
Valeant. The pay program continues to ensure good firm governance and director independence while still
allowing to attract and retain highly qualified directors • Valeant
was disappointed that shareholder support for its 2016 Say on Pay vote was 62% but has tried to be proactive
in soliciting feedback and reflecting it in future decisions IMAGE
OMITTED 4
2016
Shareholder Outreach Efforts IMAGE OMITTED
• The table below summarizes the key shareholder feedback from the 2016 outreach program,
in which 23 shareholders were contacted, and how Valeant specifically addressed this feedback: IMAGE
OMITTEDIMAGE OMITTED 5
IMAGE
OMITTED Pay Practices at Valeant and the Launch
of New Long Term Incentive Program IMAGE OMITTED
6
Valeant’s
Pay Practices IMAGE OMITTED • The
company maintains the following shareholder friendly pay practices: Ö Stringent
senior-executive shareholding requirements ensure long-term orientation: • CEO
required to purchase Valeant shares with own money that are required to be held for multiple years • Executive
officers are required to hold shares equal to two times base salary plus target annual cash incentive
Ö Annual LTI grants going forward rather than historical
practice of front-loaded grants Ö Performance-based
equity plan designed to deliver low value for low TSR and high value for high TSR Ö The
peer group was recently modified to accurately reflect Valeant’s current size Ö Compensation
philosophy that targets market median with deviation only as necessary Ö Double
trigger change in control equity vesting (i.e., unvested equity awards will accelerate only upon a qualifying
termination of employment) Ö No supplemental executive
retirement program Ö No excise tax gross-up for executives
in the event of a change in control Ö An independent
compensation consultant engaged Ö Robust investor outreach
program that enables Valeant to obtain ongoing feedback Ö Enhanced
clawback policy implemented IMAGE OMITTED
7 Ö No hedging or pledging of company
shares
New
2017 Executive LTI Program IMAGE OMITTED
• In light of the turnaround strategy and in direct response to feedback received as part
of this outreach least year, Valeant changed its executive LTI program in 2017 from front-loaded PSU
awards to a traditional LTI mix – Valeant
believes that the new LTI program appropriately balances pay and performance with appropriate risk taking
• The 2017 executive LTI design
(other than the CEO and CFO), is structured as follows: –
PSU metrics are weighted 75% return on tangible capital (ROTC) and 25% absolute TSR which has
a target goal of 2 times the stock price at grant (i.e., 2017 – 2019 target = $29.30) • The
new program is consistent with shareholder preferences for: –
A “portfolio” approach, i.e., PSUs and stock options incentivize management to increase
Valeant’s share price over the long-term, and RSUs which aid in retention, while ensuring executive
stock ownership and mitigating excessive risk taking –
The use of a capital metric (ROTC) to align LTI awards with the Company’s focus on improving
its tangible capital usage and allocation –
The majority of LTI to be delivered in performance-based vehicles (70% in PSUs and stock IMAGE
OMITTED8 options)
IMAGE OMITTED
IMAGE
OMITTED Specific 2016 Compensation Initiatives to
Stabilize and Transition Management of the Company IMAGE
OMITTED 9
New
CEO’s Compensation Package IMAGE OMITTED
• Given Valeant’s high profile, significant drop in share price, and the need
for a significant business transformation, the Board agreed it was paramount for the Company to hire
a proven, long-tenured sitting CEO with pharmaceutical experience –
The majority of our new hire CEO’s pay is based on long-term stock price performance IMAGE
OMITTED *Vesting on 50% of the buyout RSUs may be accelerated to the second anniversary if
goals relating to (i) succession planning, (ii) government relations, (iii) employee relations, (iv)
customer relations and (v) shareholder relations are achieved –
The market competitive base salary, target bonus, and 2016 new hire LTI awards were required to
attract Mr. Papa to take on the challenging Valeant CEO role • The
size of the 2016 new hire LTI award of $40M converts to $10M (annualized over 4 years) and this is in
line with pharmaceutical market median LTI practice –
Further, no LTI awards were granted to the CEO in 2017 IMAGE
OMITTED 10
Pay
for Performance Alignment - CEO IMAGE OMITTED
• The current value of Joseph Papa’s LTI awards is significantly below the $52M
target grant value ($40M new hire plus $12M buyout; the accounting grant value is also $52M); Valeant’s
price would need to increase to $60 in order for the value to surpass the $52M target IMAGE
OMITTED Excludes buy-out cash of $8M provided at time of hire to replace lost compensation from former
employer IMAGE OMITTED 11
2016
CEO Accomplishments IMAGE OMITTED • Joseph
Papa’s accomplishments during 2016 included the following: –
Built a new leadership team including the addition of several talented external hires: CFO, General
Counsel, Senior Vice President — Business Strategy, Executive Vice President — Dermatology,
Chief Quality Officer; – Re-recruited/re-engaged
the Company’s workforce: improved our sales force retention from 89% in first quarter 2016 to 94%
in fourth quarter 2016 despite asset sale rumors; –
Remediated previously identified material weaknesses: tone at the top and non-standard revenue
recognition issues; – Significantly
improved our customer relations, especially with Walgreens, KOL and Managed Care; –
Established new governance process for top-line calls, monthly financial review, quarterly business
reviews, senior leadership team and Executive Committee meetings; –
Implemented a strategic asset divestiture plan, which delivered material results in early 2017;
and – Improved relationships with
our shareholders and debt-holders. • The
Board of Directors recognized the significance and quality of the contributions made by Mr. Papa and
awarded Mr. Papa a cash bonus of 50% of his annual target incentive opportunity. IMAGE
OMITTED 12
Other
Named Executive Officer Compensation IMAGE
OMITTED New CFO Compensation Structure (Paul Herendeen) • Given
Valeant’s past accounting irregularities and high level of debt, the Company believed that it was
essential to recruit a sitting pharmaceutical CFO with a significant level of experience IMAGE
OMITTED – The market competitive base salary, target bonus, and 2016 new hire LTI awards
were necessary to attract Mr. Herendeen to Valeant –
No further LTI awards were granted to the CFO in 2017 • The
current value of Paul Herendeen’s LTI awards is well below the $20.6M grant value: IMAGE
OMITTED 13
Other
Named Executive Officer Compensation IMAGE
OMITTED 2016 Retention Awards • In
order to ensure an orderly transition from Valeant’s former management team to the new team, retention
cash and equity were provided to certain senior executives • For
example, the two former EVP Group Company Chairman and former CFO received retention equity ranging from
$0.9M to $2.9M and retention cash of $1M • These
executives played a critical role in assisting Mr. Papa stabilize the company and ensuring continuity
in 2016; they have since departed as the new executive team was put in place Special 2017 Bonus Awards
• 2016 was a very challenging
year for Valeant and the Company did not meet its financial targets for the annual incentive program
– Based on the CEO’s 2016
accomplishments, a performance bonus of $1,125,000 was provided (equal to 50% of his annual target bonus
opportunity) – For the CFO and
General Counsel, discretionary bonuses of $400,000 and $300,000, respectively, were provided –
For other senior leaders, discretionary performance/retention cash bonuses equal to target were
put in place with 50% payable in March 2017 and 50% payable in December 2017 IMAGE
OMITTED 14
Director
Compensation Changes IMAGE OMITTED • In
light of the Valeant’s recent performance and in order to align the Company’s director pay
with peer levels, several changes were recently approved • Specifically,
the following changes were made: 1. Decreased the annual equity retainer by $125,000 (from $375,000
to $250,000) 2. To offset the equity retainer decrease and to align the Company’s director pay
mix (i.e., cash versus equity) with market practice, the cash retainer was increased by $25,000 (from
$75,000 to $100,000) 3. The Audit Committee Chair retainer was decreased from $50,000 to $40,000*
4. The Lead Director retainer was decreased from $100,000 to $75,000* 5. The share ownership requirement
was changed to be five times the annual cash retainer in line with market practice (from a flat $2M value)
• Total compensation for the
median-paid Valeant director is scheduled to decrease by more than 20% * Audit
Chair and Lead Director will continue to have meaningful retainers to help ensure continued good governance
and independence IMAGE OMITTED
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General Discussion IMAGE OMITTED • Questions? • We welcome your feedback on Valeant’s evolving executive compensation program and any suggestions going forward – From your investor perspective, what Valeant executive compensation practices/design features do you support and are less likely to support? IMAGE OMITTED 16