SCHEDULE 14A

(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

SCHERING-PLOUGH CORPORATION

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement)

 

Payment of Filing Fee (Check the appropriate box):

 

 

o  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A Message from the CEO

 

 

 

Dear Fellow Shareowners,

 

The remarkable transformation of our company continues.

 

Since we launched our six-year to eight-year strategic Action Agenda in the spring of 2003, we have completed the Stabilize, Repair, and Turnaround phases. Last October, we announced the start of the next of our Action Agenda’s five phases: the Build the Base phase.

 

We have clearly moved from a survive mode to a thrive mode.

 

During the last three years, we have taken a number of actions to build long-term value, and this can be seen in our performance — growing sales, increasing earnings, transforming our cash flow situation and increasing total shareholder return. Our recent agreement to acquire Organon BioSciences N.V. has great potential to further accelerate this work, given its strong fit strategically, scientifically and financially.

 

We are grateful to our Board members for their careful oversight and diligent service through this exciting journey. We have included two new nominees in the slate of Directors proposed for election by our shareowners — Antonio M. Perez, Chairman of the Board and Chief Executive Officer of Eastman Kodak Company and Jack L. Stahl, retired President and Chief Executive Officer of Revlon, Inc. These accomplished nominees will add further breadth and depth to our strong Board.

 

Schering-Plough today is emerging among the most dynamic companies in our Peer Group. As we advance into the Build the Base phase, we will continue to drive toward our goal of long-term high performance and value creation.

 

Above all, our progress is driven by our people. Their passion, courage and tenacity are creating a new and special health care company. We can be proud of them and what they are achieving.

 

The continued support and investment by you, our shareowners, are fueling this transformation. We thank you for your confidence, and we will be working hard to continue to earn it.

 

Sincerely,

 

 

 

Kenilworth, New Jersey

April 19, 2007

 

 

Notice of Annual Meeting of Shareholders

May 18, 2007

 

 

 

The Annual Meeting of Shareholders of Schering-Plough Corporation will be held at The Miracle Theatre, 280 Miracle Mile, Coral Gables, Florida, on Friday, May 18, 2007, at 9:00 a.m. local time. The purposes of the meeting are to vote on the following proposals and to transact other business that may properly come before the meeting:

 

 

 

Only holders of record of common shares at the close of business on March 28, 2007 will be entitled to vote at the meeting or any adjournments or postponements thereof.

 

For the security of everyone attending the meeting, a shareholder must present both an admission ticket and photo identification to be admitted to the Annual Meeting of Shareholders. The process for shareholders to obtain an admission ticket from Schering-Plough’s transfer agent, The Bank of New York, is described in the proxy statement on page 56.

 

Your vote is important. Whether or not you plan to attend the meeting, please vote in advance by proxy in whichever way is most convenient — in writing, by telephone or by the internet. We appreciate your investment in Schering-Plough, and we encourage you to participate in its governance by voting.

 

Susan Ellen Wolf

Corporate Secretary and

Vice President – Corporate Governance

 

Kenilworth, New Jersey

April 19, 2007

Table of Contents

 

 

 

Proxy Statement

 

2007 Annual Meeting of Shareholders

 

The Miracle Theatre
280 Miracle Mile
Coral Gables, FL 33134
Friday, May 18, 2007
9:00 a.m.

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Schering-Plough Corporation to be voted at its Annual Meeting of Shareholders on May 18, 2007, and any adjournments or postponements of the Annual Meeting of Shareholders. At the 2007 Annual Meeting of Shareholders, holders of common shares will vote on the following matters:

 

 

 

The Board of Directors has designated Fred Hassan, Robert J. Bertolini and Susan Ellen Wolf as proxies in connection with the 2007 Annual Meeting of Shareholders. With respect to any other matter that properly comes before the Annual Meeting of Shareholders, these proxies will vote as recommended by the Board of Directors or, if no recommendation is given, in their own discretion.

 

This proxy statement and the accompanying proxy and voting instruction card, together with the 2006 financial report to shareholders and company overview, are being mailed beginning on or about April 20, 2007, to all holders of record of common shares as of the close of business on March 28, 2007. There were 1,489,238,967 common shares outstanding on March 28, 2007.

 

The address of Schering-Plough’s principal executive offices is 2000 Galloping Hill Road, Kenilworth, New Jersey 07033 and its website is www.schering-plough.com.

 

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The Board has nominated thirteen nominees for election as Directors for a one-year term expiring at the 2008 Annual Meeting of Shareholders. In each case, Directors are elected to serve for a one-year term and until their successors have been elected and qualified.

 

In the event one or more of the named nominees is unable or unwilling to serve, the persons designated as proxies may cast votes for other persons as substitute nominees. The Board of Directors has no reason to believe that any of the nominees named below will be unavailable, or if elected, will decline to serve.

 

Biographical information is given below for each nominee for Director. Antonio M. Perez and Jack L. Stahl each is nominated to be elected by shareholders for his first annual term as a Director (each was identified to the Nominating and Corporate Governance Committee as a qualified candidate by a third-party search firm). All other nominees are presently serving as Directors.

 

Vote required. A plurality of the votes cast is required for the election of Directors.

 

The Board recommends a vote FOR each of the nominees in proposal one.

 

Nominees not currently serving as Directors

 

 

 

 

 

Schering-Plough is subject to the New York Stock Exchange independence requirements for Directors and has adopted the more restrictive Schering-Plough Board Independence Standard, which is included in the Corporate Governance Guidelines. The Guidelines require:

will not be independent until four years after the end of such relationship.

 

The Guidelines are available on Schering-Plough’s website at www.schering-plough.com. The Nominating and Corporate Governance Committee assists the Board with the assessment of Director independence. For more information about the procedures used to assess independence, see “Procedures for Related Party Transactions and Director Independence Assessments” beginning on page 20.

 

The Nominating and Corporate Governance Committee and the Board have determined that (1) Hassan is not independent because as Chairman of the Board and CEO of Schering-Plough, he is an officer and employee of Schering-Plough; (2) Leder is not independent because of certain transactions between Schering-Plough and a company where his son is the chief executive officer (for additional information, see “Certain Transactions” on page 9); (3) all other Directors and both new nominees are independent under the New York Stock Exchange listing standards and the more restrictive Schering-Plough Board Independence Standard; (4) each independent Director and each new nominee has no material relationship with Schering-Plough; and (5) former Director Richard de J. Osborne was independent under both standards prior to retiring in early 2006.

 

The Nominating and Corporate Governance Committee and the Board have determined that all members of the Audit Committee — Directors Becherer, Colligan, McGrath and van Oordt — also are independent pursuant to the requirements of Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the Exchange Act).

 

The Board of Directors held nine meetings in 2006, including a two-day strategic planning meeting. All Directors attended more than 75% of the aggregate of (1) the total number of meetings of the Board, and (2) the total number of meetings held by all Committees of the Board on which they served.

 

Directors are expected to attend Annual Meetings of Shareholders unless an emergency or illness makes such attendance impossible or imprudent. Since 1990, only one Director has missed an Annual Meeting of Shareholders (due to illness), and all other Directors have attended all Annual Meetings of Shareholders, including the 2006 Annual Meeting of Shareholders at which all Directors were present. In 2006, Mr. Kidder attended by teleconference because, on the date of the Annual Meeting of Shareholders, which was scheduled before he joined the Board, he was in another state to attend his daughter’s wedding.

 

As required in the Corporate Governance Guidelines, the Board periodically meets in executive session without any Director present who is also a member of management. During 2006, the Board held five such sessions.

 

Executive sessions are always chaired by an independent Director. The independent Directors have determined to rotate this responsibility every six months among the independent Directors who chair Committees of the Board. Currently, Thomas J. Colligan is chairing the executive sessions.

 

In light of routine inquiries about Board turnover, the following information is provided:

 

Between 2002 (the year in which the Board announced the intention to replace R.J. Kogan as Chairman and CEO) and the date of the 2007 Annual Meeting of Shareholders, seven Directors have left the Board and, if all nominees are elected, six Directors have joined the Board.

 

Specifically, during 2002, Directors Herzlinger, Morley and Wood left the Board; during 2003, the year in which Hassan joined Schering-Plough, Hassan and Leder joined the Board, while Kogan left the Board; during 2004, Komansky and Miller left the Board; during 2005, Colligan and Kidder joined the Board; during 2006, Osborne left the Board; and if elected at the Annual Meeting of Shareholders, Perez and Stahl will join the Board in 2007.

 

All Directors participated in a customized Director Education module on the evolution of Drug Discovery during 2006. The module consisted of five hours of preparatory work, an hour-long presentation and an hour-and-a-half-long interactive session, led by an outside expert and Schering-Plough’s Executive Vice President, Schering-Plough Research Institute and Chief Scientific Officer.

 

Additional education is provided throughout the year, as needed, on matters pertinent to Committee work and Board deliberations. Subjects covered for the full Board or certain Board Committees during education sessions in 2006 included:

 

Each Director earned at least five additional education credit hours by participating in these activities. Several Directors also attended general Director education programs offered by third parties during 2006.

 

Director Compensation

 

Hassan receives no compensation for his service as a Director.

 

All other Directors receive compensation pursuant to the Directors Compensation Plan. These Directors receive no compensation, directly or indirectly, from Schering-Plough other than pursuant to the Directors Compensation Plan.

 

The Process for Reviewing and Determining Director Compensation. The Nominating and Corporate Governance Committee, pursuant to its charter, is responsible for conducting an annual assessment of non-management

Director compensation and benefits. The Committee members are all independent as defined in the New York Stock Exchange listing standards and the more restrictive Schering-Plough Board Independence Standard described in “Director Independence” on page 6.

 

As part of the assessment, the Committee considers the amount of Director compensation and the mix of compensation instruments. The Committee uses benchmarking data relating to Director compensation at other companies. The Committee also considers feedback from shareholders about Director compensation.

 

Since 2005, this assessment has included benchmarking using independent data compiled by the National Association of Corporate Directors for similar-sized companies in both the pharmaceutical and health care industries.

 

Director Compensation Philosophy. The Nominating and Corporate Governance Committee targets Director compensation at the median of total compensation of pharmaceutical and health care companies. The Committee believes Directors at companies in these global industries face oversight and analytical issues similar to those faced by Schering-Plough Directors. The Committee believes the current compensation paid to Directors is reasonable in light of the service they provide to Schering-Plough.

 

Directors Compensation Plan. In 2006, at the recommendation of the Committee and the Board, shareholders approved a new, more transparent Directors Compensation Plan. The Committee drew from the Non-Employee Director Compensation Policy published by the Council of Institutional Investors and outside counsel for plan design. The new Plan became effective June 1, 2006 and provided compensation for 2006 fiscal year service on the Board.

 

Under the Plan, non-employee Directors receive a set amount for service on the Board. The amount is paid in a mix of two-thirds in cash and one-third in common shares. Directors who serve either on the Audit Committee or as the Chair of any other Board Committee receive an additional service fee paid in cash. There is no additional service fee for the Committee Chair of the Executive Committee.

 

Directors may elect to defer receipt of their Director fees. Directors may elect to defer the cash component of their compensation in either an account that grows/diminishes in value as if invested in Schering-Plough common shares (with dividend equivalents reinvested) or in an account that earns interest at a market rate. Directors may also elect to defer the share component of their compensation in an account that grows/diminishes in value as if invested in Schering-Plough common shares (with dividend equivalents reinvested).

 

Director Stock Ownership. Director stock ownership is considered in conjunction with Director compensation. Director stock ownership also is a valuable tool to align Directors’ interests with those of Schering-Plough shareholders. The Nominating and Corporate Governance Committee considers Director ownership of Schering-Plough equity and recommends ownership requirements to the Board. In 2005, the Board established stock ownership requirements for all Directors and included the requirements in the Corporate Governance Guidelines. The current requirement is 5,000 common shares (including deferred stock units) within three years of joining the Board, and all Directors have achieved the requirement.

 

2006 Director Compensation. For 2006 service, Directors received (1) a base Director fee of $200,000, two-thirds of which was paid in cash and one-third of which was paid in unrestricted Schering-Plough common shares; and (2) an additional service fee of $15,000 for each eligible Director who served either on the Audit Committee or as the Chair of any other Board Committee. Committee Chairs who were also members of the Audit Committee were only paid one additional service fee.

 

No Personal Benefits. Director compensation did not include personal benefits in 2006. Director compensation will not include personal benefits in 2007. Directors occasionally receive complimentary Schering-Plough consumer products, like Dr. Scholl’s and Coppertone products, and spouses are invited to travel with Directors to meetings every few years, the last time being in 2005. At these meetings, the spouses typically attend certain portions of the business activities, such as touring Schering-Plough operations. The total cost to Schering-Plough for all such items has been under $10,000 per Director, per year.

2006 Director Compensation Table

 

The following table includes all compensation to outside Directors.

 

 

 

 

Certain Transactions

 

Dr. Leder’s son, Ethan Leder, is chief executive officer of United BioSource Corporation, which provides specialized pharmaceutical services, including pharmacoeconomic information and analysis. Schering-Plough, for many years, has obtained services from companies that are part of the United BioSource family of companies (going back to a period before Dr. Leder joined the Schering-Plough Board and before Ethan Leder became affiliated with such companies). During 2006, Schering-Plough business with these companies totaled approximately $1.6 million, which was under 2% of United BioSource Corporation’s annual gross revenues for 2006 fiscal year. The Nominating and Corporate Governance Committee and the Board of Directors determined that Dr. Leder is not independent as a result of these transactions. Since joining the Board, Dr. Leder has never been a member of a Board Committee for which independence is required.

 

For more information about the procedures used to assess independence, see “Procedures for Related Party Transactions and Director Independence Assessments” beginning on page 20.

 

The Audit Committee selected Deloitte & Touche LLP (Deloitte) to audit Schering-Plough’s books and accounts for the year ending December 31, 2007 and will offer a resolution at the meeting for shareholders to ratify the designation. Although shareholder ratification is not required, the designation of Deloitte is being submitted for ratification at the 2007 Annual Meeting of Shareholders because Schering-Plough believes it is a matter of good corporate governance practice.

 

Representatives of Deloitte will be present at the meeting to respond to appropriate questions. They will have an opportunity, if they desire, to make a statement at the meeting.

 

Vote required. The affirmative vote of a majority of the votes cast is needed to ratify the designation of Deloitte.

 

The Board of Directors recommends a vote FOR proposal two.

 

Aggregate fees for 2006 and 2005 services provided by Deloitte and its affiliates to Schering-Plough and its subsidiaries are as follows:

 

 

 

The Audit Committee has a policy to pre-approve all services provided by Deloitte or its affiliates and the related fees. They did so for all 2006 and 2005 services and will continue the pre-approval process in the future. The pre-approval process includes the following steps:

 

Information About the Audit Committee of the Board of Directors and Its Practices

 

Membership and Independence.  The Audit Committee of the Board of Directors has four members. Each member is an independent Director, as independence is defined by the New York Stock Exchange listing standards, the more restrictive Schering-Plough Board Independence Standard and the requirements of Rule 10A-3(b)(1) under the Exchange Act.

Functions and Process.  The Audit Committee operates under a written charter adopted by the Board. The charter is available on Schering-Plough’s website at www.schering-plough.com.

 

The Audit Committee selects, evaluates and oversees the work of the independent registered public accountants and holds regular private sessions with them. The Audit Committee also oversees the work of the global internal auditors and holds regular private sessions with the senior internal audit executive and other executives as considered appropriate by the Committee.

 

The Board has determined that the Committee Chairman, Thomas J. Colligan, meets the SEC requirements for, and has designated him as, the Audit Committee Financial Expert.

 

The Audit Committee is appointed by the Board to assist the Board in its oversight function by monitoring, among other things, the integrity of Schering-Plough’s consolidated financial statements, the financial reporting process, the independence and performance of the independent registered public accountants, and the performance of the internal auditors. It is the responsibility of Schering-Plough’s management to prepare financial statements in accordance with generally accepted accounting principles and of the independent registered public accountants to audit those financial statements. The Audit Committee has the sole authority and responsibility to select, appoint, evaluate and, where appropriate, replace the independent registered public accountants.

 

In this context, the Audit Committee has met and held discussions with management, the independent registered public accountants and the internal auditors. Management represented to the Audit Committee that Schering-Plough’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management, the independent registered public accountants and the internal auditors. The Audit Committee discussed with the independent registered public accountants matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accountants required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed with the independent registered public accountants the independent auditor’s independence from Schering-Plough and its management.

 

Based on the reviews and discussions referred to above, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and set forth in the charter, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in Schering-Plough’s 2006 10-K for filing with the SEC.

 

AUDIT COMMITTEE

 

Thomas J. Colligan, Chairman

Hans W. Becherer

Eugene R. McGrath

Robert F. W. van Oordt

 

Schering-Plough’s Restated Certificate of Incorporation and By-Laws currently require the affirmative vote of the holders of 66% to 80% of all outstanding shares to approve various matters and to amend certain provisions in these governing documents. This proposal would lower all “supermajority” vote requirements to a majority vote.

 

Background. In December 2006, on the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors unanimously adopted resolutions approving, declaring advisable and recommending to shareholders for approval amendments to its governing instruments to lower all “supermajority” vote requirements to a majority vote in each instance where a shareholder vote is required.

 

In deliberating the advantages of the proposal, the Committee and the Board gave considerable weight to (i) the view of some investors that supermajority vote provisions can limit shareholders’ ability to effect change and participation in the governance process; (ii) the level of support at the 2006 Annual Meeting of Shareholders for a shareholder proposal submitted by Charles Miller, with John Chevedden acting as his proxy, relating to simple majority voting; and (iii) the results of a 2006 shareholder survey on this and other governance issues. During their deliberations, the Nominating and Corporate Governance Committee and the Board of Directors were advised by outside experts.

 

Details. The proposal would change the following provisions in the Certificate of Incorporation and By-Laws to reduce the supermajority vote requirement to a majority vote:

 

These amendments would revise Articles SEVENTH, NINTH, TENTH, ELEVENTH and TWELFTH of the Certificate of Incorporation and Articles IV, V, and IX of the By-Laws. The description of the proposed amendments to the governing documents in this proxy statement is only a summary of the material terms and provisions of the proposed amendments to the governing instruments. The actual text of the Certificate of Incorporation and By-Laws, marked with deletions indicated by strike-outs and additions indicated by underlining to indicate the amendments that will be made if this proposal is approved by shareholders, is available on Schering-Plough’s website at www.schering-plough.com.

 

Effective Time. If approved, (a) the amended and restated By-Laws will become effective at the time of the shareholder vote; and (b) the amended and restated Certificate of Incorporation will become effective upon filing with the Department of Treasury of the State of New Jersey, which Schering-Plough intends to do promptly after shareholder approval is obtained.

 

Vote Required. The affirmative vote of at least 80% of the outstanding common shares is needed to pass this proposal.

 

The Board of Directors recommends a vote FOR proposal three.

 

Schering-Plough Directors currently are elected by a plurality vote. This proposal would change the standard for the election of Directors to a majority of votes cast.

 

Background. New Jersey law provides that, unless otherwise specified by the Certificate of Incorporation, Directors are elected by a plurality of votes cast. Since Schering-Plough’s Restated Certificate of Incorporation does not provide otherwise, Directors are currently elected by a plurality vote. Under a plurality vote standard, Director nominees with the most votes cast in their favor are elected to the Board, notwithstanding any votes withheld against a Director nominee.

 

In deliberating the advantages of the proposal, the Nominating and Corporate Governance Committee and the Board gave considerable weight to (i) the level of shareholder support — albeit not a majority — at the 2006 Annual Meeting of Shareholders for a proposal requesting that Director nominees be elected by an affirmative vote of the majority of votes cast; (ii) dialogue with the Sheet Metal Workers’ National Pension Fund; and (iii) the results of a 2006 shareholder survey on this and other governance issues. During the deliberations, the Nominating and Corporate Governance Committee and the Board of Directors were advised by outside experts.

 

In December 2006, on the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors unanimously adopted a resolution approving, declaring advisable and recommending to shareholders for approval an amendment to its Certificate of Incorporation to elect Directors by a majority of votes cast, including in the situation where the number of Director nominees exceeds the number of Directors to be elected. In the event that a Director nominee fails to receive a majority of votes cast, such “holdover” Director must immediately offer to resign. The Nominating and Corporate Governance Committee will determine the appropriate action to take with respect to the offer of resignation, which may include recommending that the Board decrease the number of Directors, fill any vacancy or take any other appropriate action.

 

Details. The description of the proposed amendments to Article NINTH of the Certificate of Incorporation in this proxy statement is only a summary of the material terms and provisions of the proposed amendments. The actual text of the Certificate of Incorporation, marked with deletions indicated by strike-outs and additions indicated by underlining to indicate the amendments that will be made if this proposal is approved by shareholders, is available on Schering-Plough’s website at www.schering-plough.com.

 

Effective Time. If approved, the Amended and Restated Certificate of Incorporation will be effective upon filing with the Department of Treasury of the State of New Jersey, which Schering-Plough intends to do promptly after shareholder approval is obtained.

 

Vote Required. The affirmative vote of at least 80% of the outstanding common shares is needed to pass this proposal.

 

The Board of Directors recommends a vote FOR proposal four.

 

William Steiner, with John Chevedden acting as his proxy, at 112 Abbottsford Gate, Piermont, NY 10968, has informed Schering-Plough of his intention to present the proposal set forth below for consideration at the Annual Meeting of Shareholders. Steiner owns approximately 500 common shares. To Schering-Plough’s knowledge, Chevedden owns no shares. If the proponent, or his representative who is qualified under state law, is present and submits the proposal for a vote, then the proposal will be voted upon at the Annual Meeting of Shareholders. To help readers distinguish between text provided by the proponent and text provided by Schering-Plough, the material provided by the proponent is shaded.

 

Vote required. The affirmative vote of a majority of the votes cast is required to approve the shareholder proposal.

 

(a)	Indexed stock options, the exercise price of which is linked to an industry index;
(b)	Premium-priced stock options, the exercise price of which is substantially above the market price on the grant date; or

(c)	Performance-vesting options or restricted stock, which vest only when the market price of the stock exceeds a specific target for a substantial period.

 

BOARD OF DIRECTORS’ STATEMENT IN OPPOSITION TO PROPOSAL FIVE

 

The Board and its Compensation Committee agree with the proponent that a significant percentage of equity compensation should be performance-based. Going further than the proponent, as discussed in the “Compensation Discussion and Analysis,” the Board and its Compensation Committee believe a significant percentage of total compensation — as opposed to only equity compensation — should be performance-based. The charts on page 28 in the “Compensation Discussion and Analysis” demonstrate how the percentage of compensation that is performance-based has increased since 2003, when the new management team arrived and the compensation program was re-designed. Approximately 76% of 2006 total earned compensation for the named executives was performance-based, not counting traditional stock options (including traditional stock options, the percentage of performance-based compensation increases to 84%).

 

As called for in the new SEC rules, the performance criteria relating to each performance-based award paid in 2006 are disclosed in the “Compensation Discussion and Analysis.”

 

The Board and its Compensation Committee believe that the parameters set forth in the proposal are too specific and would limit the Committee’s flexibility to design performance metrics that best meet the objectives of the compensation system — including building long-term shareholder value and retaining outstanding talent — given the relevant circumstances at various future dates. Based on the financial and operating results produced to date under the current compensation system, the Board asks shareholders to show support for retaining the Compensation Committee’s flexibility for the design of performance-based instruments, by voting against the proposal.

 

The Board recommends a vote AGAINST proposal five.

 

Stock Ownership of Certain Beneficial Owners

 

Set forth below is certain information with respect to those persons who are known to Schering-Plough to own beneficially more than 5% of the outstanding Schering-Plough common shares.

 

 

 

Common Share and Common Share Equivalents Ownership of Directors and Officers

 

Set forth below in the column titled “Number of Common Shares” is information with respect to beneficial ownership of Schering-Plough common shares as of March 28, 2007, by each Director, the executive officers named in the “Summary Compensation Table” and by all Schering-Plough Directors and executive officers as a group. Set forth below in the column titled “Number of Common Share Equivalents” is the number of common share equivalents (which grow/diminish like common shares) credited as of March 28, 2007, to the accounts of Schering-Plough’s non-employee Directors.

 

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Directors, officers and beneficial owners of more than 10% of Schering-Plough’s outstanding common shares are required by Section 16(a) of the Exchange Act and related regulations to file ownership reports on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange and to furnish Schering-Plough with copies of the reports.

 

Schering-Plough believes that all required Section 16(a) reports were timely filed in 2006. Schering-Plough’s belief is based solely upon a review of:

 

Listening to, learning from and communicating with shareholders is the heart of Schering-Plough’s shareholder relations program.

 

Schering-Plough has a robust investor relations program that includes presentations to shareholders by senior management and other key employees, as well as dialogue between shareholders and senior management or the investor relations professionals. In addition, since 2003, Directors and members of the new management team have participated or will participate regularly in transparent and interactive dialogue with investors about a number of governance policy and social issues, including:

 

The shareholder relations function at Schering-Plough is shared between Investor Relations, which covers issues regarding Schering-Plough’s business, financial matters and stock performance, and Corporate Governance, which covers issues regarding Schering-Plough’s corporate governance and social issues. Corporate Officers serve as liaisons between shareholders, members of senior management and the Board. Shareholders are asked to use the contacts noted below to ensure that information is conveyed to senior management and the Board. These Corporate Officers also arrange direct interaction of senior management members and the Board with shareholders as appropriate.

 

 

Schering-Plough believes that good corporate governance practices create a solid foundation for achieving its business goals and keeping the interests of its shareholders and other stakeholders in perspective. Under Hassan’s leadership, in 2003, Schering-Plough adopted a new Vision — to earn trust, every day — and new Leader Behaviors: shared accountability and transparency, cross-functional teamwork and collaboration, listening and learning, benchmark and continuously improve, coaching and developing others, and business integrity.

 

Schering-Plough has long recognized the importance of good corporate governance, first adopting its Statement of Corporate Director Policies in 1971, which among other things required that a majority of the Board be independent. In 2004, the Board adopted Corporate Governance Guidelines, consistent with the new Vision and Leader Behaviors. The Board, with oversight by the Nominating and Corporate Governance Committee, reviews and enhances the governance practices, including the Corporate Governance Guidelines and the charters of the Board Committees, on a regular basis. The Guidelines and Committee charters are available on Schering-Plough’s website at www.schering-plough.com.

 

The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Each of the members of those Committees are independent Directors, as independence is defined in the New York Stock Exchange listing standards and the more restrictive Schering-Plough Board Independence Standard. Members of the Audit Committee all meet the independence requirements set forth in Rule 10A-3(b)(1) under the Exchange Act. The charters of these Committees have been adopted by the Board and are available on Schering-Plough’s website at www.schering-plough.com.

 

The Board of Directors also has a standing Business Practices Oversight Committee, a Finance Committee and a Science and Technology Committee. The charters of these Committees are available on Schering-Plough’s website at www.schering-plough.com.

Table of Committee Membership and Meetings

 

The following table names the Directors who Chair and serve as members on each Committee.

 

 

Schering-Plough also has an Executive Committee which meets as needed in the interim between Board meetings. It did not meet in 2006.

 

Committee Functions. Audit Committee functions include selecting the independent registered public accountants, subject to shareholder ratification, and providing oversight of the independent registered public accountants’ independence, qualifications and performance; and assisting the Board in its oversight function by monitoring the integrity of Schering-Plough’s financial statements, the performance of the internal audit function, and compliance by Schering-Plough with legal and regulatory requirements. For additional information, see “Information About the Audit Committee of the Board of Directors and Its Practices” and the “Audit Committee Report” beginning on page 10.

 

Business Practices Oversight Committee functions include assisting the Board with oversight of non-financial compliance systems and practices and related management activities, including regulatory requirements prescribed by the U.S. Food and Drug Administration and the European Agency for the Evaluation of Medicinal Products; and assisting the Board with oversight of systems for compliance with Schering-Plough’s Standards of Global Business Practices.

 

Compensation Committee functions include discharging the Board’s responsibilities relating to the compensation of officers; approving, evaluating and administering of executive compensation plans, policies and programs; and making recommendations to the Board regarding equity compensation and incentive plans. For additional information, see “Information About the Compensation Committee of the Board of Directors and Its Practices” beginning on page 22.

 

Finance Committee functions include assisting the Board with oversight of strategic financial matters and the capital structure, and recommending the dividend policy to the Board.

 

Nominating and Corporate Governance Committee functions include assisting the Board with Board and Committee structure, identifying nominees (and considering shareholder nominees in accordance with provisions of the By-Laws described on page 58), Director independence and Director compensation. More information about the Committee is provided below.

 

Science and Technology Committee functions include assisting the Board of Directors in the general oversight of science and technology matters that impact Schering-Plough’s business and products.

 

Membership and Independence. The Nominating and Corporate Governance Committee has five members. Each member is an independent Director, as independence is defined in the New York Stock Exchange listing standards and the more restrictive Schering-Plough Board Independence Standard.

Functions and Process. The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board. The charter is available on the Schering-Plough website at www.schering-plough.com.

 

The Nominating and Corporate Governance Committee identifies Director nominees, and is responsible for the independence standards and assessments. The Nominating and Corporate Governance Committee assesses and recommends Director compensation. The Nominating and Corporate Governance Committee recommends the structure of the Board and Committees. It also recommends Committee function and membership. The Nominating and Corporate Governance Committee determines the process for the annual Board and Committee performance assessments, the content of Committee charters and the Corporate Governance Guidelines.

 

One of the Nominating and Corporate Governance Committee’s most important functions is the identification of Director nominees. The Committee considers nominees from all sources, including shareholders, nominees submitted by other outside parties and candidates known to current Directors. The Committee also has from time to time retained an expert search firm (that is paid a fee) to help identify candidates possessing the minimum criteria and other qualifications identified by the Committee as being desired in connection with a vacancy on the Board. All candidates must meet the minimum criteria for Directors established by the Committee. These criteria listed in Schering-Plough’s Corporate Governance Guidelines are:

 

Candidates are evaluated in the same manner regardless of who first suggests they be nominated. The candidate’s credentials are provided to the Nominating and Corporate Governance Committee by the Corporate Secretary with the advance materials for the next Committee meeting. If any member of the Committee believes the candidate may be qualified to be nominated, the Committee discusses the matter at the meeting. For each candidate who is discussed at a meeting, the Committee decides whether to further evaluate the candidate. Evaluation includes a thorough background check, interaction and interviews with Committee members and other Directors and discussion about the candidate’s availability and commitment. When there is a vacancy on the Board, the best candidate from all evaluated sources is recommended by the Committee to the full Board to consider for nomination.

 

The Board of Directors has adopted a process for shareholders and others to send communications to the Board or any Director. This includes communications to a Committee, the independent Directors as a group, the current Chair of the Board’s executive sessions or other specified individual Director(s). All communications are to be sent by mail or by fax, care of the Corporate Secretary, at Schering-Plough headquarters, addressed as follows:

 

[Board or Name of Individual Director(s)]

c/o Corporate Secretary

Schering-Plough Corporation

2000 Galloping Hill Road

Mail Stop: K-1-4-4525

Kenilworth, New Jersey 07033

Fax: 908-298-7303

 

The independent Directors have directed the Corporate Secretary to screen the communications. First, communications sent by mail are subject to the same security measures as other mail coming to Schering-Plough, which may include x-ray, scanning and testing for hazardous substances. Next, the Board has directed the Corporate Secretary and her staff to read all communications and to discard communications unrelated to Schering-Plough or the Board. All other communications are to be promptly passed along to the addressee(s). Further, the Corporate Secretary’s staff is to retain a copy in the corporate files and to provide a copy to other Directors, members of management and third parties, as appropriate. For example, if a communication was about auditing or accounting matters, the policy established by the Audit Committee provides that Audit Committee members also would receive a copy, as would the senior Global Internal Audits executive, and in certain cases, the independent registered public accountants.

 

Anyone who wishes to contact the Audit Committee to report complaints or concerns about accounting, internal accounting controls or auditing matters may do so anonymously by using the above procedure.

 

Schering-Plough has adopted a code of business conduct and ethics, the Standards of Global Business Practices applicable to all employees, including the chief executive officer, chief financial officer and controller, as well as the Directors Code of Conduct and Ethics applicable to the Board. Schering-Plough’s Corporate Governance Guidelines, Standards of Global Business Practices, Directors Code of Conduct and Ethics, and Committee charters are available in the Investor Relations section of Schering-Plough’s website at www.schering-plough.com. In addition, a written copy of the materials will be provided at no charge by writing to: Office of the Corporate Secretary, Schering-Plough Corporation, 2000 Galloping Hill Road, Mail Stop: K-1-4-4525, Kenilworth, New Jersey 07033.

 

The New York Stock Exchange has long recommended that independent Directors review related party transactions. At Schering-Plough, the Nominating and Corporate Governance Committee oversees Schering-Plough’s procedure for identifying, analyzing and approving related party transactions. The Nominating and Corporate Governance Committee also reviews information about Director independence and recommends independence standards and determinations to the Board.

 

The written procedure for related party transactions applies to any transaction between Schering-Plough or its affiliated companies on the one hand, and a Director, executive officer or his/her family members on the other hand. The procedure requires prior review by counsel of any related party transaction regardless of size. The prior review allows the Board and management to ensure that any related party transaction is consistent with the best interest of Schering-Plough and its shareholders and, where a Director is involved, to assess the impact on Director independence.

 

The prior review of a proposed related party transaction includes a determination as to whether the transaction has been made on an arm’s length basis (that is, on terms comparable to those provided to unrelated third parties). The review also includes information about other, unrelated alternatives to a proposed related party transaction; for example, were a purchase of supplies being proposed then the review would identify competing vendors/terms, or were a relative being considered for a job opening then the review would include a description of other applicants and their qualifications.

If a related party transaction is proposed, the results of the prior review are presented to the Nominating and Corporate Governance Committee. If the Committee is comfortable with the proposed related party transaction, the transaction is tracked to assure that as the transaction occurs, it remains within the approved scope and amount. If a related party transaction or series of transactions spans multiple years, it is reconsidered once a year by the Committee.

 

Schering-Plough maintains a list of related parties for each Director and executive officer which is updated as Schering-Plough learns of changes (for example, upon marriage or change of employment) and is confirmed in writing once a year by the Director or executive officer. To help assure no related party transaction has been inadvertently overlooked, Schering-Plough checks accounts receivable and sales and accounts payable and disbursements against the list of related parties quarterly. Also, annually Schering-Plough asks for written confirmation from each Director and executive officer as to all related party transactions that exceed the thresholds in the New York Stock Exchange listing standards, the more restrictive Schering-Plough Director Independence standard, for Audit Committee members the additional independence standards specified in Rule 10A-3(b)(1) under the Exchange Act and various disclosure thresholds and materiality standards as determined by Schering-Plough’s counsel and accountants to be prudent for ensuring compliance with applicable laws and regulations.

 

Membership and Independence. The Compensation Committee of the Board of Directors has four members. Each member is an independent Director, as independence is defined by the New York Stock Exchange listing standards and the more restrictive Schering-Plough Board Independence Standard as defined in the Corporate Governance Guidelines, which is available on Schering-Plough’s website at www.schering-plough.com.

 

Functions and Process. The Compensation Committee operates under a written charter adopted by the Board. The charter is available on Schering-Plough’s website at www.schering-plough.com.

 

Consistent with the provisions of its charter, the Compensation Committee reviews and approves the compensation of the CEO and other senior executives. For several years, it has also been the Compensation Committee’s practice to review and approve the compensation of all elected corporate officers, and the Compensation Committee followed this practice in 2006.

 

The Compensation Committee’s review and approval of the compensation of executives includes:

 

In determining executive compensation, the Compensation Committee considers all relevant material factors, which may include:

 

For more information on these factors, see the “Compensation Discussion and Analysis” beginning on page 24.

 

The Compensation Committee’s Consultant. In determining the amount and form of executive compensation, the Compensation Committee often asks for advice from its outside compensation consultant. In June 2006, Ira Kay of Watson Wyatt, a compensation consultant, was retained to report to the Compensation Committee, following the retirement of its prior consultant in late 2005. Kay does not now provide, and has never provided, any services to Schering-Plough, any member of management, or any employee of Schering-Plough. Watson Wyatt does not provide services to Schering-Plough, any member of management or any employee of Schering-Plough although it does provide non-U.S. actuarial and benefit plan services to certain Schering-Plough subsidiaries. None of these services relate to compensation of the named executives or other executives, and the fees for all such services are not material to Watson Wyatt or Schering-Plough.

 

Following his retention, at the direction of the Committee, Kay attended each meeting of the Compensation Committee, including a special strategic planning meeting held in August 2006 to deliberate on the strategic direction of the compensation system and to discuss re-design of the long-term incentive component of the executive compensation program. His role included benchmarking and advice relating to the design of the long-

term incentive award opportunities for the 2007-2009 performance period, salary decisions, determination of annual and long-term performance awards, change of control benefits and employment agreement provisions.

 

In addition, Kay reviewed the “Compensation Discussion and Analysis,” as well as the other information about the Compensation Committee and executive compensation contained in this proxy statement. He discussed that review with the Compensation Committee.

 

For 2007, the Committee has asked Kay to assist the Committee Chair in determining the agenda for all meetings and requested that he attend each meeting of the Committee. The Committee has also asked Kay to:

 

Interaction with Management and Schering-Plough’s Consultant. The Compensation Committee frequently asks for input from management. Given Hassan’s experience in driving high performance in the pharmaceutical industry, as well as turning around troubled companies, the Committee often seeks his input beyond his thoughts as the Chief Executive Officer. Others who frequently provide input or support to the Compensation Committee include Schering-Plough’s Human Resources executives; Bertolini, Schering-Plough’s Chief Financial Officer; Schering-Plough’s Controller; Sabatino, Schering-Plough’s General Counsel; and Schering-Plough’s Corporate Secretary/Vice President-Corporate Governance. In addition, other Schering-Plough professional employees, including Human Resources compensation staff, accountants, internal auditors, securities lawyers, tax lawyers and compensation lawyers, support the Compensation Committee as requested from time to time.

 

Schering-Plough’s outside executive compensation consultant, Towers Perrin, has provided data that was considered by the Committee, including certain market and benchmarking data considered in 2006.

 

Outside Experts. In addition, the Compensation Committee from time to time seeks advice from outside counsel who are experts in executive compensation and disclosure matters. Outside counsel provided design advice to the Committee regarding the 2006 Stock Incentive Plan and drafted that plan. The “Compensation Discussion and Analysis,” as well as the other information about the Compensation Committee and executive compensation contained in this proxy statement, was also reviewed by outside compensation and securities lawyers.

 

Interaction with the Board. The Compensation Committee also seeks the Board’s thoughts on compensation decisions from time to time.

 

Private Sessions. After receiving all inputs that the Compensation Committee has requested on a particular compensation matter, the Committee’s usual practice is to meet in a private session, with only Committee members in attendance, to reach final decisions about executive compensation.

 

Other Information. While the Compensation Committee Charter allows the Committee to delegate its functions to a subcommittee, the Compensation Committee has not done so since the Committee first adopted a charter in 2003. For information about delegation of the authority to the CEO for certain interim equity grants to non-executives, see “Grant Practices For Stock Options and Other Equity Awards” beginning on page 33.

 

At Schering-Plough, the Nominating and Corporate Governance Committee of the Board of Directors is responsible for Director compensation. For details, see “Information About the Nominating and Corporate Governance Committee of the Board of Directors and Its Practices” beginning on page 18 and “Director Compensation” beginning on page 7.

 

 

There are none.

 

Executive Summary

 

During the early part of this decade, Schering-Plough suffered serious challenges and the Board undertook significant actions in response including:

 

 

The compensation reported in this proxy statement primarily reflects performance during two periods, 2006, and for the three-year long-term performance period ending December 31, 2006 (the first long-term performance period completed under the new management team’s leadership). Performance has been excellent. From January 1, 2004 to December 31, 2006, market capitalization increased by $9.7 billion — to $35.2 billion — and total shareholder return grew by 41% (at the top of the first quartile compared to the Peer Group). Sales and earnings improved against prior performance, as well as relative to the Peer Group. See “Key Performance Metrics in 2006” on page 25.

 

As a result of the excellent 2006 annual and excellent three-year performance, short and long-term performance-related compensation was superior. And because on average from 2004 through 2006, target incentive compensation comprised approximately 81% (79% for 2006 alone) of total compensation for the named executives, 2006 total earned compensation was also superior. (If regular time-based stock options are excluded, target incentive compensation comprised approximately 55% of total compensation for the named executives on average during the three-year period and 56% for 2006).

 

While compensation was superior in 2006, it was also appropriate compared to the increase in Schering-Plough’s value. For example, long-term compensation earned for the three-year performance period ending in 2006 for the named executives and 40 other executives compensated under the same long-term program equates to just 1.2% of the increase in Schering-Plough’s market capitalization for the same period.

 

Finally, retention of the new management team is key for several reasons:

 

 

Key Performance Metrics in 2006

 

General Performance Metrics — Used by the Compensation Committee in considering total compensation levels

 

 

Three-Year Growth in Market Cap.  Increased by $9.7 billion or 38%.

January 1, 2004 — $25.5 billion

December 31, 2006 — $35.2 billion

 

 

Free Cash Flow.*  Increased by $2.2 billion.

2004 — ($940 million)

2006 — $1,291 million

 

* Operating cash flow less capital expenditures and dividends paid.

 

Three-Year Adjusted Sales.  Increased by $3.9 billion, or 46% from 1/1/04 to 12/31/06. (Schering-Plough adjusted to include 50% of the cholesterol joint venture)

 

 

Organizational Health Metrics. See inside back cover.

Performance Metrics for Incentive Compensation — Used by Compensation Committee to determine performance-based pay components

 

 

Three-Year Total Shareholder Return.  Increased by 41%.

 

The metric for the three-year long-term performance share unit incentive.

 

Three-Year Annualized Earnings Per Share Growth Rate.

 

The metric for the three-year cash long-term incentive.

 

2006 Adjusted Sales.  Increased by 17% in 2006, compared to a 3% increase for Peer Group.

 

A metric for the 2006 annual incentive.

 

2006 Operating Earnings Per Share.

 

(excludes/includes non-operating items designated by the Compensation Committee at the start of the performance period)

 

 

A metric for the 2006 annual incentive, performance-contingent stock options and performance-contingent deferred stock awards.

 

Market Cap and Total Shareholder Return data from Bloomberg, other Peer Group data from First Call.

 

 

 

Total Compensation

 

Total Compensation Philosophy. The total compensation program is designed to provide superior pay if there is superior performance that is consistent with the goal to build long-term value for shareholders. The total compensation program design supports the Compensation Committee’s objectives, which are as follows:

 

Target Total Direct Compensation Opportunity. As a general matter, Schering-Plough targets its total executive compensation opportunity at the median of its selected Peer Group of global U.S.-based pharmaceutical companies. However, for certain of the named executives, and selected other executives, Schering-Plough has set total compensation opportunity at the 75th (or higher) percentile compared to the Peer Group. This is due to the factors described in this “Compensation Discussion and Analysis” and the “Compensation Committee Report” including:

 

As described in detail below, a large percentage of pay is tied to total shareholder return and other financial goals believed to be tied to increasing shareholder value over the long term. As a result, actual future pay could be significantly higher or lower than the 75th percentile of the Peer Group’s realizable pay.

 

Total 2006 Actual Compensation. Total actual compensation was above the median in 2006 because performance was very strong, both in 2006 and during the three-year performance period ended December 31, 2006 (this was the three-year performance period for the first long-term awards available to the new management team). Performance was very strong compared to the Peer Group, as well as compared to company performance in prior periods, as Schering-Plough continued its transformation from a seriously challenged company in 2003 to a strong, high-performing company today that is on its way to the aspiration of sustained long-term high performance. As described under “Key Performance Metrics in 2006” above, major accomplishments include: increase in market capitalization, increase in free cash flow, increase in total shareholder return, strong earnings growth, strong sales growth, double digit growth in key product sales, investment in innovation for the future and improvement in organizational health (evidenced by a study by the independent International Survey Research (ISR), a leader in employee surveys). In addition to the specific performance metrics utilized under the incentive plans, the Compensation Committee also looks at all relevant performance indicators in setting the target total compensation levels and opportunity. See “Key Performance Metrics in 2006” on page 25.

 

Neither annual nor long-term incentives would have been paid to the named executives or other executives if the performance minimums had not been achieved, and both would have paid out at lower levels had the target performance measures not been exceeded.

 

Specifically, for 2006 (and as reflected in the “Summary Compensation Table”), 81% of total earned compensation for Hassan, and on average 75% of total earned compensation for the other named executives, was performance-based. (If traditional stock options were included, those percentages would increase to 87% of total compensation for Hassan and 83% for the other named executives.) As discussed in detail below, the named executives earned an annual incentive at 200% of target because the performance exceeded the criteria for a payout at the maximum. In addition, the long-term incentive compensation instruments with performance periods ending in 2006 paid out at 155% of target because performance exceeded the criteria for a payout at target.

 

Stock Ownership Guidelines. The Company’s aggressive stock ownership guidelines are an integral part of the total compensation program. The guidelines are applicable to all members of the Operations Management Team, comprised of the top 35 to 40 key employees, including the named executives. The Compensation Committee established these guidelines to drive significant retention of equity compensation by executives in order to strengthen their focus on the creation of long-term shareholder value. Each executive was given five years (from the later of his or her date of election or the adoption of the guidelines in 2004) to achieve the ownership goal. If the executive does not meet the goal by the deadline, the Compensation Committee will reduce future stock option grants until the executive satisfies the goal. Compliance is re-calculated annually, so that any rise in base salary causes the goal to rise and, in the event the stock price were to decline, an executive who had achieved the goal would need to buy additional common shares, even absent a rise in base salary. Schering-Plough policy

prohibits anyone subject to the ownership guidelines from entering into hedging arrangements including, without limitation, collars, puts/calls and loan pools. The specific goal for the named executives and their progress toward their goals is as follows:

 

 

In addition, as mentioned above and further described below, the Compensation Committee re-designed the long-term portion of the executive compensation program for the performance period beginning January 1, 2007 to consist only of performance-based equity. This will increase the percentage of target total compensation that is equity-based to 75% for Hassan and to an average of 65% for other named executives. The Committee’s objective in the re-design was to further drive long-term superior performance by increasing the focus on building shareholder value over the long term.

 

Peer Group. In setting total compensation levels and making other compensation decisions, the Compensation Committee uses a comparator group, called the “Peer Group” in this proxy statement. The Peer Group is the seven U.S.-based global pharmaceutical companies: Abbott Laboratories, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Pfizer and Wyeth. The Peer Group is the same group management uses to evaluate operational and financial performance for non-compensatory purposes.

 

The Compensation Committee reconsiders from time to time whether the Peer Group is the correct comparator group. The Compensation Committee last considered this matter, in a discussion led by Kay, during 2006. At that time the Compensation Committee concluded that, notwithstanding Schering-Plough being one of the smaller companies among the Peer Group, the Peer Group remains the best comparator for the following reasons:

 

Performance-Based Pay Has Increased. The bar charts below show how the concentration of performance-based compensation increased since the new performance-based compensation program began in January 2004.

 

 

 

 

 

 

The Elements of the Schering-Plough Compensation Program

 

Under the current compensation program, target total compensation is allocated among base salary, annual incentive, equity and other long-term incentive and employee benefits.

 

Base Salary. Base salary is paid in cash. Salary and benefits are the only non-variable compensation that senior executives of Schering-Plough receive.

 

The Compensation Committee annually assesses a number of factors in determining the salary of the executive officers (including the named executives) annually. For 2006, those factors included:

 

The Committee also considers Schering-Plough’s overall financial performance, and in the case of executives with responsibility for a particular business unit, that unit’s financial results. These factors are not weighted, and the Compensation Committee bases salary increases on an assessment of the above factors. The Committee targets salaries of Schering-Plough’s executives at or near the median of the salary levels of the Peer Group. However, base salaries above the median may be necessary (and up to the 75th percentile), in some cases, to attract and retain key talent.

 

Annual Incentive. The annual incentive is also paid in cash. The annual incentive is paid in order to align efforts across Schering-Plough on the most critical, shorter-term issues needed to move Schering-Plough forward on the strategic Action Agenda. The performance metrics are established at the start of the year in accordance with the Operations Management Team Incentive Plan which has been approved by shareholders. Amounts paid under the plan are intended to be deductible under Section 162(m) of the Internal Revenue Code.

 

Annually, the Compensation Committee selects the performance metrics for the annual incentive. For each performance metric, the Committee sets a threshold, and if performance falls below a specified level, no annual incentive is earned or paid. For each performance metric, the Committee also sets specified performance levels that correspond to the minimum, target and maximum payout levels. Annual incentives are targeted at the median of the Peer Group, with above-average and superior performance resulting in actual payments above the median.

 

For 2006, there were two corporate performance goals for each named executive:

 

Sales. Attain sales growth of 14% (using the adjusted sales figures included in Schering-Plough’s earnings releases, which are GAAP sales plus 50% of the sales from Schering-Plough’s cholesterol joint venture) for a payout at maximum. Actual reported adjusted sales were $12.5 billion, an increase of 17% over 2005.

 

Earnings Per Share. Attain consolidated earnings per share from operations of at least 73 cents per share for a payout at maximum with adjustments for certain unanticipated one-time items. The goal for a maximum payout represented an increase of 97% over the prior year actual earnings from operations, 37 cents. Earnings from operations were 87 cents per share. See the calculation of earnings from operations in “Key Performance Metrics in 2006” on page 25. As explained there, earnings from operations are GAAP earnings as adjusted to include and exclude non-operating items designated by the Compensation Committee at the start of this performance period.

Leader Behaviors (six key work behaviors)
•    Shared Accountability and Transparency   •    Cross-Functional Teamwork and Collaboration   •    Listening and Learning   •    Benchmark and Continuously Improve   •    Coaching and Developing Others   •    Business Integrity		Once the corporate goals are determined, the incentive opportunity for each named executive may be reduced if individual objectives, including the demonstration of Leader Behaviors, are not achieved. The Leader Behaviors are summarized in the box to the left. Schering-Plough believes that the Leader Behaviors are key to maintaining good organizational health and emphasizing business integrity. Schering-Plough believes this balance, with the required focus on Leader Behaviors impacting compensation, helps prevent an unhealthy focus on short-term financial results at the expense of building long-term value and also is key to avoiding challenges of the type faced by Schering-Plough under prior management.

 

As shown above, Schering-Plough performance exceeded the hurdles for a maximum payout on the two corporate goals. These corporate goals determine the overall funding for the annual incentive. The Committee did not reduce the payout for any of the named executives, and each received a payout at the maximum, which was 200% of target.

 

Schering-Plough’s Annual Incentive Plan provides an annual incentive bonus for workers not covered by the Operations Management Team Incentive Plan. The overall funding for that plan is determined by reference to the same corporate goals as the annual incentive for executives under the Operations Management Team Incentive Plan, so funding for that plan was at 200%; however, under that non-executive plan, there is no individual limit as there is for executives and individual performance can take a participant above the 200% payout, so long as aggregate payouts remain within the funding limit.

 

Equity and Other Long-Term Elements of Compensations. The current compensation program includes three equity components as well as other long-term incentives. All equity components are issued under the 2006 Stock Incentive Plan, that has been approved by shareholders and was designed to meet the requirements of Section 162(m) of the Internal Revenue Code.

 

Stock Options. Schering-Plough believes traditional stock options are an important component of a competitive pay package necessary to attract and retain top executive talent. Schering-Plough also believes that traditional stock options have a performance component, since the options have no value unless the stock price rises (Schering-Plough’s stock incentive plan does not permit discounted options, so that the closing market price on the date of grant is always the stock option exercise price). Stock options further link compensation to the interests of shareholders by providing the named executives with the opportunity to purchase common shares, thereby increasing their equity in Schering-Plough and sharing in the appreciation in the value of the shares.

 

In determining the number of stock options to grant, the Compensation Committee relies on a valuation of stock options provided by Schering-Plough’s compensation consultant using the Black-Scholes methodology as the basis for valuation.

 

Stock options are generally subject to a three-year ratable vesting schedule and starting in 2006 have a term of seven years. The actual value of any options depends entirely on the extent to which Schering-Plough’s common shares have appreciated in value at the time the options are exercised. This provides an incentive for executives to create wealth for the shareholders and provides rewards in proportion to the gain received by other shareholders.

 

Performance-Contingent Options. Because certain of Schering-Plough’s institutional investors and other shareholders favor stock options with special performance-based vesting provisions, starting in 2005, 20% of the stock options granted to senior executives, including the named executives, are subject to performance-contingent vesting. To earn 100% (which is maximum) of the performance-contingent options granted in 2006, earnings per share from operations of at least 42 cents had to be achieved. Earnings per share from operations in 2006 were 87 cents and, as a result, all of the named executives’ performance-contingent options vested.

 

Deferred Stock Awards. Under the current deferred stock award program, the Compensation Committee designates performance goals for the named executives. If the performance goals are not fully met, then the vesting of an executive’s deferred stock award is based on the degree to which the performance goals are achieved. To earn 100% (which is the maximum) of the deferred stock awards granted in 2006, earnings per

share from operations of at least 42 cents had to be achieved. Earnings per share from operations in 2006 were 87 cents and, as a result, all of the named executives’ deferred stock awards vested.

 

Other Long-Term Incentives. The long-term incentive awards paid for the three-year performance period ending December 31, 2006 are the first long-term awards paid under the current compensation program. Further, under the compensation program that began January 1, 2004, no long-term incentives could be paid until completion of the three-year performance cycle and no new performance cycles were established after the first three-year cycle began January 1, 2004. Thus, for all of the named executives, other than Kohan and Pickett, whose service dates back before 2003, these are the only long-term incentives paid to date by Schering-Plough.

 

The long-term award opportunity for the three-year performance period ending December 31, 2006 was divided into two pieces as follows:

 

Cash Long-Term Incentive. — Based on Earnings per Share Growth — the cash long-term incentive opportunity was designed to reward long-term operational excellence by providing an opportunity to earn a cash incentive award over a three-year performance period. The amount earned was 200% of target and was based upon Schering-Plough’s three-year compounded growth of earnings per share from operations (the goal for a maximum payout was to exceed compounded growth of 31% and actual performance was 41%), and three-year compounded growth of earnings per share from operations relative to the Peer Group over that period (the goal for a maximum payout was to be in the top quartile of the Peer Group and Schering-Plough was in the top quartile). See “Key Performance Metrics in 2006” on page 25.

 

Long-Term Performance Share Unit Incentive. — Based on Total Shareholder Return — the long-term performance share incentive opportunity focused on Schering-Plough’s long-term performance by providing an opportunity to earn performance stock units, payable in cash, at the end of a three-year performance period. The amount earned was 110% of target and was based on Schering-Plough’s achievement of 41% growth in three-year total shareholder return and top quartile performance versus the Peer Group. See “Key Performance Metrics in 2006” on page 25.

 

To aid in the retention objective, both long-term incentives provide that only 25% of the award vested at the end of the performance period on December 31, 2006, with 50% to vest on December 31, 2007 and the remaining 25% to vest on December 31, 2008. Further, the terms of the incentive awards included mandatory deferral by everyone who received an award opportunity, including the named executives. For the cash long-term incentive, the theoretical amount earned during the performance period is rolled into an unfunded savings plan. For the performance share unit incentive, the theoretical amount earned during the performance period is simply “held” until the end of the vesting period without earning any additional amounts until vesting. After vesting, the amounts are rolled into the unfunded savings plan. The unfunded savings plan provides the executive with the right to earn a theoretical return (or suffer a theoretical loss) as if the amount had been invested pursuant to any one of the investment alternatives provided under Schering-Plough’s qualified 401(k) plan, the Employees’ Savings Plan. Under the unfunded savings plan, amounts credited to the named executive’s account are not payable until the year following the named executive’s employment termination.

 

Five-Year Transformational Share Opportunity. The Compensation Committee in early 2004 granted the one-time opportunity to earn transformational awards to eight senior executives in order to induce them to join and/or remain with Schering-Plough when the serious challenges facing Schering-Plough were still being analyzed and solutions were being developed. There are two performance measures for the transformational awards. Both performance measures are related to total shareholder return:

 

If Schering-Plough’s targeted performance over the five-year performance period is not in the top half of the Peer Group, no payment will be earned pursuant to the opportunity.

 

Only eight executives received the opportunity to earn this award, including Hassan, Bertolini, Cox, Kohan and Sabatino. Pickett’s opportunity was forfeited when he retired before the end of the performance period.

 

Even though the performance period has not yet ended, and if performance is not achieved the entire opportunity will be forfeited, as directed by SEC rules, a portion of potential transformational award is

included in the Stock Awards column and added to the total shown in the “Summary Compensation Table.’’ Readers should note that executives will never receive this award if performance conditions are not met.

 

If any transformational award is earned, it generally cannot be received by the executive until the year after his or her employment is terminated. After the end of the performance period, a theoretical earned amount would be credited to the executive’s account in the unfunded savings plan, where it will grow/diminish in value as if it had been invested in Schering-Plough common shares. Dividends accrue on the fund shares and are reinvested on behalf of the named executive as additional stock units.

 

Future Equity and Long-Term Incentive Design. The Compensation Committee believes the three long-term incentives — the three-year cash long-term incentive, the three-year performance share unit long-term incentive and the five-year transformational incentive — were instrumental in attracting and retaining the Executive Management Team and in focusing them in a manner that resulted in the superior performance achieved to date.

 

As Schering-Plough is now in a different position, having worked to the mid-point of the strategic Action Agenda, (as described in the “Compensation Committee Report”) the Compensation Committee held a two-day strategic planning meeting in August 2006 to discuss changes to the executive compensation program design. The following decisions were made at that planning meeting:

 

Employee Benefits. Schering-Plough provides typical employee benefits to regular workers, and the named executives do not receive different coverage for these employee benefits. These employee benefits include excellent health and prescription drug coverage, disability and accident insurance, and a “cafeteria” plan allowing employees to choose among a range of other benefits (dependent care and health reimbursement, vision, dental, increased disability coverage, etc.), some of which are subsidized. Retirement benefits that are available to employees include retiree medical, a 401(k) savings plan and a retirement plan. Schering-Plough also maintains unfunded plans that provide the same company contributions and benefit formula as the 401(k) savings plan and the retirement plan for earnings above the Internal Revenue Code’s annual compensation limits. These equalization plans are in place to give employees the full benefit intended under the qualified plans by making them whole for benefits otherwise lost as a result of such compensation limitations.

 

In order to provide executives with competitive aggregate retirement benefits, Schering-Plough maintains a supplemental executive retirement plan for the benefit of members of the Operations Management Team (which includes the named executives, other members of the Executive Management Team and other key employees).

 

Other than retirement and other savings plans made available to executives, which are discussed in more detail below, the following types of benefits, where there is a Schering-Plough business interest as discussed below, are the only personal benefits Schering-Plough provides to the named executives (and where appropriate to other elected corporate officers) but not to all employees generally:

 

Security. Schering-Plough provides home security systems to each executive and provides personal security (bodyguards) to Hassan. The named executives in 2006, and prior years, have received threats of personal harm from animal rights activists and others based upon Schering-Plough’s business and as a result, Schering-Plough believes this protection is necessary.

 

Transportation. Hassan has been directed by the Board to use the corporate-owned aircraft for all travel including personal travel. This provides several business benefits to Schering-Plough. First, the policy is intended to ensure the personal safety of Hassan, who maintains a significant public role as the leader of Schering-Plough. Second, the policy is intended to ensure his availability and to maximize the time available for Schering-Plough business. Certain of the other named executives (and other key executives) use the corporate-owned aircraft for business travel, and on occasion for personal travel.

 

In addition, for the same reasons described above, Schering-Plough makes one car and driver available to Hassan. The driver assigned to Hassan is also a trained security professional. The other

named executives occasionally use cars and drivers from a pool. All executives use the cars primarily for business purposes, and the cars and drivers (including the car and driver assigned to Hassan) are also used by other Schering-Plough personnel for business purposes.

 

Financial Matters. Schering-Plough provides executive life, financial and tax planning coverage to the named executives. Schering-Plough believes these benefits promote diligence in matters of financial prudency and guard against damage from inadvertent lack of attention to personal business.

 

For additional information on these personal benefits to the named executives, including Schering-Plough policies and incremental cost valuations, see Note 6 to the “Summary Compensation Table.”

 

Payments at Change of Control or Other Termination

 

Change of control provisions benefit Schering-Plough and shareholders by assisting with retention during rumored and actual change of control activity when continuity is key to preserving the value of the business. Other termination benefits are provided based on the time needed by executives of that level to find new employment, to facilitate changes in key executives, as needed, with minimum disruption to the business and in exchange for non-competition and non-solicitation benefits for Schering-Plough.

 

Information on Other Compensation-Related Topics

 

The following additional information may also be useful in understanding Schering-Plough’s executive compensation program:

 

Annual Performance Assessments. In furtherance of the objective to reward superior individual performance, the attainment of all financial performance metrics relating to compensation are certified for the Compensation Committee. These certified financial metrics are a key component of the assessment of CEO and named executive performance. The Board assesses all aspects of the CEO’s performance annually, and the results are applied by the Compensation Committee for determining his compensation. The CEO assesses the performance of the other named executives and reviews his assessment with the Compensation Committee. The results of the performance assessments are applied by the Compensation Committee for determining compensation of the other named executives.

 

Assessments of 2006 performance for 2006 compensation decisions are described in the “Compensation Committee Report” under the heading “Basis for 2006 Compensation Decisions” and that section is incorporated here by reference.

 

Grant Practices For Stock Options and Other Equity Awards. Schering-Plough’s usual practice for stock options and deferred stock units is to make one annual grant per year. The annual grant is awarded on the same date to all eligible employees, including the named executives. Typically the annual grant has occurred during the first half of the year on a regular Board meeting date (these meeting dates are set at least a year in advance). In 2006, the Compensation Committee approved the annual grant on May 19, the date of the Annual Meeting of Shareholders, at which the 2006 Stock Incentive Plan (the plan under which the stock options and deferred stock units were granted) was approved.

 

Due to the interest of shareholders in having a set date for the annual grant of stock options, the Compensation Committee recently determined that in the future, the annual grant will be made on the first business day of May. This date was chosen by the Committee because the date falls soon after first quarter earnings are typically announced (in late April); material developments would be expected to have been made public in connection with the earnings press release; and the date is late enough in the year to allow for the performance management process to be completed so that the annual grant can be coordinated with the Schering-Plough total compensation program.

 

Performance-contingent share awards, which are part of the long-term performance opportunity, and any other equity grants, will be granted by the Compensation Committee at a regularly scheduled Committee meeting during the first 90 days of each year (these meeting dates are set at least a year in advance). For the 2007-2009 performance period, the award opportunity was granted at the February 26, 2007 meeting. Unlike stock options, where an exercise price is set, the date does not impact the award terms, and this earlier grant date ties into the performance management system, where goals and objectives for the year and longer-term are revisited at the start of the calendar year.

 

Other stock option grants and deferred stock unit grants are typically made during the year to new hires, for retention and in connection with promotions. Such interim grants to executive officers and other elected corporate officers are approved by the Compensation Committee. The Committee has delegated the authority to approve such interim grants for other non-executive key employees to the CEO. In each case, the grant date for

an interim grant is the first business day of the month following the month in which the new hire begins work, the promotion became effective or the retention need becomes known. This timing was chosen to prevent even an appearance that the recipient could manipulate the pricing date, and also to reduce the administrative burden for Schering-Plough personnel that would be created by multiple grant dates.

 

The stock incentive plans under which all outstanding options were granted and under which options may be granted in the future specify that the option exercise price is always the fair market value of Schering-Plough common shares on the date of grant. The plans define “fair market value” as the New York Stock Exchange closing price on the grant date. Schering-Plough determines the New York Stock Exchange closing price by reference to the New York Stock Exchange web reporting system.

 

In setting the policy as to the timing of stock option grants, the Committee considered advice from the Committee’s compensation consultant, outside counsel, Schering-Plough’s Human Resource executives and Schering-Plough’s in-house securities lawyers.

 

No Stock Option Re-Pricings. Schering-Plough stock options have not been re-priced in the past. Under Schering-Plough’s Corporate Governance Guidelines and 2006 Stock Incentive Plan, re-pricing is prohibited unless shareholders approve the re-pricing.

 

The Current Environment of the Pharmaceutical Industry and Executive Recruitment. The pharmaceutical industry is science-focused and driven by innovation. Other characteristics of the pharmaceutical industry include: drugs discovered through innovation save lives and improve the quality of lives; there are still many unknowns in the complex and dynamic science of human health — even if every step of the discovery and development process is executed flawlessly, there is an ever-present risk of failure; with any drug, there is always a balance between benefits and risks, and society’s increasing demand for innovation to cure illness is offset by society’s ever-shifting tolerance for risk; the industry is highly regulated and uncertainties in the political environment impact the regulatory framework; research-based drug discovery and development works on a five-year to fifteen-year new drug cycle; the cost of drug discovery and development is high and often unpredictable; and the intellectual property laws (which evolve as governments change), competitive pressures, and regulatory/science developments often limit the effective commercial life of a drug to a few years, putting pressure on replenishing the product portfolio by successful research and development.

 

As a result, Schering-Plough believes executives with specific industry experience are most likely to excel. At the same time, there is a small pool of superior executives with pharmaceutical industry experience. These factors can make it difficult to recruit a top-performing management team, which makes retention very important for Schering-Plough.

 

Historical Information.  The Compensation Committee and Schering-Plough believe that knowledge of unique circumstances that impacted Schering-Plough are helpful in understanding the current compensation program. Accordingly, details of these circumstances are set out below.

 

Background on the Recruitment of New Management in 2003. Earlier this decade, Schering-Plough faced a number of very serious business, legal and regulatory challenges. These challenges included declining sales and profits across the product portfolio; a Consent Decree with the FDA relating to manufacturing practices that was unprecedented in the scope of remediation and revalidation requirements; multiple legal issues around sales and marketing practices; severe cash flow pressures; several enforcement actions initiated by the SEC; and the urgent need to upgrade Schering-Plough infrastructure in many areas. As a result of these challenges, there was a critical need to re-build employee engagement and morale as well as to build trust with the external stakeholders — including Schering-Plough’s customers, regulators and investors. Details of many of these challenges can be found in Schering-Plough’s 10-K, 10-Q and 8-K filings.

 

The Board of Directors in 2002 determined that new management was required to solve the challenges and transform Schering-Plough into a high-performing company that could provide value to shareholders over the long term. In November 2002, the Board elected an independent Director to assume the position of Chairman of the Board and decided to recruit a new CEO. The Board embarked on a search to locate a proven CEO who could deal with Schering-Plough’s accelerating challenges. The search was complex due to a number of factors, including:

 

 

 

The Board was fortunate in attracting Hassan in April 2003. He had been Chairman and CEO of Pharmacia before it was acquired by Pfizer, had received a contract to serve as Vice Chairman of Pfizer and was also being aggressively pursued to lead another global pharmaceutical company at the time he decided to join Schering-Plough. He had led turnarounds and transformations in research-based global pharmaceutical companies similar to Schering-Plough. Hassan also brought to Schering-Plough a long record of business integrity. The Board believed that tone at the top was especially important for a company going through a difficult period.

 

Hassan’s personal reputation allowed Schering-Plough to attract very strong executives who together formed the new team at the top — the Executive Management Team. Many of the new executives had previously distinguished themselves in companies equivalent to, or larger than, Schering-Plough. For example:

 

 

 

Re-design of the Compensation Program in 2003-2004. In 2003, the Compensation Committee determined that the executive compensation program should be re-designed with the goal of avoiding behaviors that had led to Schering-Plough’s challenges and to better support the objectives set forth above.

 

To lead the way for all employees, Hassan voluntarily asked the Committee to forfeit his 2003 bonus of several million dollars even though he had met his 2003 performance objectives. Also, even before the Compensation Committee had instituted the “Stock Ownership Guidelines,” as soon as counsel cleared the timing of the purchase, in November 2003, Hassan made an open market purchase of Schering-Plough common shares with $4.6 million of his own funds to demonstrate his confidence in the ability of the new team to turn around Schering-Plough and deliver long-term high performance. In connection with the new compensation program:

 

 

Schering-Plough implemented the new compensation program on January 1, 2004. At the same time, Schering-Plough initiated a rigorous performance management system that included tying pay to both company and individual performance.

 

Accomplishments of the New Management Team. The new CEO was able to quickly apply his previous experience in analyzing the challenges at Schering-Plough and devising solutions. Shortly after taking charge, he laid out a six-to-eight year strategic plan, called the Action Agenda. This Action Agenda has five phases: Stabilize, Repair, Turnaround, Build the Base, and Breakout. The Board approved and has supported the Action Agenda.

 

To date, the new management team is slightly ahead of the Action Agenda schedule, having led Schering-Plough through the first three phases, and entering the fourth phase of the Action Agenda in late 2006. The Compensation Committee measures performance of the new management team from January 1, 2004 forward, because 2004 is the first full year under the new management team’s leadership and the first full year under the new performance-based compensation system. The specific performance measures that relate to particular elements of executive compensation are discussed in detail in the “Compensation Discussion and Analysis,” and the Committee believes the excellent performance over this period was driven by the performance-based compensation programs that the Committee initiated at the start of 2004, with full support from the new CEO.

 

Compensation Discussion and Analysis. The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” with management, its compensation consultant, compensation counsel and securities counsel. Based on the review and discussion, the Compensation Committee recommended to the Board that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference into the 2006 10-K.

 

Committee’s Objectives in Designing the Compensation System. The Compensation Committee designed the current compensation program with the following objectives:

 

 

The Compensation Committee believes the program has achieved these objectives, as described in more detail below in this Report and in the “Compensation Discussion and Analysis.”

 

Basis for 2006 Compensation Decisions.  In determining the CEO’s compensation for 2006, the Compensation Committee determined that the CEO’s performance exceeded expectations, with significant achievements including:

 

 

 

 

The Committee also notes the efforts of others to recruit the CEO to other pharmaceutical companies as well as large companies outside the industry.

 

In determining the compensation of the other named executives, the Compensation Committee considered:

 

 

 

Conclusion.  The Committee has included the additional details in this Report beyond the requirements in order to help the reader understand Schering-Plough’s performance-based management compensation system, the strong ties of compensation to performance and the Committee’s rationale for the specific 2006 compensation decisions that are explained in detail in the “Compensation Discussion and Analysis.” Shareholders’ inquiries are welcome through the shareholder contacts set out under “Shareholder Relations” beginning on page 16.

 

COMPENSATION COMMITTEE

 

Hans Becherer, Chairman

C. Robert Kidder

Patricia F. Russo

Arthur F. Weinbach

 

SUMMARY COMPENSATION TABLE

																												Change in Pension
																												Value and
																												Nonqualified
																												Deferred
																		Option				Non-Equity Incentive Plan						Compensation				All Other
Name and Principal				Salary				Bonus				Stock Awards						Awards				Compensation						Earnings				Compensation			Total ($)
Position in 2006		Year		($) (1)				($)				($) (2)						($) (3)				(4)						($) (5)				($) (6)			Shown on Table
Fred Hassan   Chairman of the   Board & Chief   Executive Officer		2006		$	1,646,250			$	0			Deferred stock units: Long-term performance units: Transformational plan: Total:		$	4,184,936 2,129,418 3,893,803 10,208,157			$	2,878,072			Annual incentive: Long-term incentive: Total:		$	4,175,000 8,596,698 12,771,698			$	1,520,822			$	632,927		$	29,657,926
Robert J. Bertolini   Executive Vice   President & Chief   Financial Officer		2006			858,725				0			Deferred stock units: Long-term performance units: Transformational plan: Total:			1,040,975 616,110 1,297,934 2,955,019				786,657			Annual incentive: Long-term incentive: Total:			1,400,000 2,882,725 4,282,725				883,343				137,712			9,904,181
Carrie S. Cox   Executive Vice   President &   President, Global   Pharmaceuticals		2006			987,500				0			Deferred stock units: Long-term performance units: Transformational plan: Total:			1,453,756 817,696 1,297,934 3,569,386				1,115,694			Annual incentive: Long-term incentive: Total:			1,600,000 3,294,543 4,894,543				515,549				222,760			11,305,432
Thomas P. Koestler, Ph.D.   Executive Vice   President &   President,   Schering-Plough   Research Institute		2006			611,458				0			Deferred stock units: Long-term performance units: Total:			825,393 340,703 1,166,096				268,571			Annual incentive: Long-term incentive: Total:			980,000 2,017,908 2,997,908				335,551				117,543			5,497,127
Raul E. Kohan   Senior Vice President   and President, Animal   Health		2006			479,250				0			Deferred stock units: Long-term performance units: Transformational plan: Total:			621,229 238,493 1,297,934 2,157,656				880,701			Annual incentive: Long-term incentive: Total:			582,000 1,198,390 1,780,390				653,155				98,831			6,049,983
Thomas J. Sabatino, Jr.   Executive Vice   President &   General Counsel		2006			711,125				0			Deferred stock units: Long-term performance units: Transformational plan: Total:			775,000 481,197 1,229,256 2,485,453				734,692			Annual incentive: Long-term incentive: Total:			1,008,000 1,902,599 2,910,599				304,312				132,433			7,278,614
Cecil B. Pickett, Ph.D.   Former Senior Vice   President &   President,   Schering-Plough   Research Institute (7)		2006			505,958				0			Deferred stock units: Long-term performance units: Total:			1,131,963 1,012,368 2,144,331				1,056,648			Annual incentive: Long-term incentive: Total:			770,000 2,113,998 2,883,998				0				202,189			6,793,124

(1)		Includes $1,317,000 salary deferred at Hassan’s election, and $118,500 deferred at Cox’s election, and invested in the executive’s account under the unfunded savings plan. For more information about deferred amounts, including earnings on deferred amounts, see the “Nonqualified Deferred Compensation Table” and related notes and narrative.

(2)		Amount represents the dollar amount recognized for financial statement reporting purposes with respect to 2006 for each named executive, disregarding any estimate of forfeiture relating to service-based vesting conditions. For each of the named executives, the Stock Award column includes the FAS 123R expense for:
		•    deferred stock units that were outstanding in 2006;
		•    long-term performance share units that were granted in 2004 with a three-year performance period ending December 31, 2006; and
		•    transformational program shares that were granted in 2004 with a five-year performance period ending December 31, 2008.

		For discussion of assumptions made in these valuations, see Note 4 to Schering-Plough’s Consolidated Financial Statements in the 2006 10-K. For more information on these awards, including the performance measures used to calculate the awards, see “The Elements of the Schering-Plough Compensation Program” beginning on page 29, and the “Grants of Plan-Based Awards Table” and related notes.

(3)		Amount represents the dollar amount recognized for financial statement reporting purposes with respect to 2006 for each named executive, disregarding any estimate of forfeiture relating to service-based vesting conditions. For discussion of assumptions made in these valuations, see Note 4 to Schering-Plough’s Consolidated Financial Statements in the 2006 10-K.

		For more information on stock options, see “The Elements of the Schering-Plough Compensation Program” beginning on page 29, and the “Grants of Plan-Based Awards Table” and related notes.

(4)		The Non-Equity Incentive Compensation column includes all cash incentive earnings for services performed during fiscal year 2006 by the named executive pursuant to the:
		•    Operations Management Team Incentive Plan, Schering-Plough’s annual incentive pay plan for executives; and
		•    Cash Long-Term Incentive Plan, a long-term incentive plan covering the three-year period from 2004 through 2006.

		For more information on these awards, including the performance measures used to calculate the awards, see “The Elements of the Schering-Plough Compensation Program” beginning on page 29, and the “Grants of Plan-Based Awards Table” and related notes.

(5)		The amounts disclosed in the Change in Pension Value column represent the aggregate change in the actuarial present value of the named executives’ accumulated benefit under Schering-Plough’s qualified and nonqualified defined benefit and actuarial pension plans from December 31, 2005 to December 31, 2006. For more information about those plans, see the “Pension Benefits Table” and related notes and narrative.
		Schering-Plough’s unfunded savings plan does not provide for above market or preferential earnings. All earnings credited reflect earnings that would be achieved under the mirrored investment choices available under Schering-Plough’s 401(k) savings plan. For more information, see the “Nonqualified Deferred Compensation Table” and related notes and narrative.

(6)		The amounts set forth in the All Other Compensation column for the named executives are detailed in the tables below. As described in more detail in the “Employee Benefits” beginning on page 32, Schering-Plough believes there is a business purpose for the few personal benefits provided only to executives. Schering-Plough calculates the cost of personal benefits provided to the named executives at the incremental cost to Schering-Plough.

		For the corporate aircraft, Schering-Plough’s incremental cost calculation for personal use of the aircraft is based on the average variable cost per hour. This includes cost of fuel, crew hotels and meals, on-board catering, trip-related maintenance, landing fees, trip-related hangar/parking costs and smaller variable costs. Over 94% of flying hours were for business use since Hassan joined Schering-Plough in April 2003. Since the corporate-owned aircraft are used primarily for business travel, the incremental cost calculations exclude the fixed costs that do not change based on usage, such as pilots’ salaries, the purchase costs of the corporate-owned aircraft and the cost of maintenance that is not related to personal travel.
		Schering-Plough does not have an aircraft dedicated to any executive. Decisions as to who may use the corporate aircraft are based on business priorities. Schering-Plough permits “ride alongs” on corporate aircraft in limited situations, where a spouse or other family member of an executive, traveling for business, is permitted to accompany the executive if the seat would otherwise be unoccupied. However, the practice at Schering-Plough is to fill the planes with employees traveling for business when possible. It is not unusual for non-executive employees, who are traveling for business, to fill all seats when an executive is using the aircraft, in which case there is no room for ride alongs. If the aircraft is traveling for a personal flight, ride alongs are permitted and then the full incremental cost of using the aircraft is shown as a personal benefit for the executive(s) on the aircraft. Other than catering, there is no incremental cost to Schering-Plough for the ride alongs. Schering-Plough includes the cost of all catering in the hourly rate for use of the aircraft. As a result, any catering costs for ride alongs is spread over all flights, including personal flights where there is no catering.
		Schering-Plough’s incremental cost calculation for personal use of the cars and drivers includes driver overtime, meals and travel pay, maintenance and fuel costs. All of the cars and drivers also provide business transportation to other executives and non-executive Schering-Plough personnel. Since Hassan joined Schering-Plough in April 2003, over 94% of the use of the cars and drivers has been for business use. Since the cars are used primarily for business travel, the methodology excludes the fixed costs that do not change based on personal usage, such as drivers’ salaries and the purchase costs of the cars.

		Personal security, home security, financial planning and tax preparation are valued at actual costs billed by outside vendors. Schering-Plough contributions to savings plans consist of Schering-Plough’s annual 3% contribution and up to 2% matching contribution to the account of each employee under the 401(k) savings plan and the unfunded savings plan. Unused vacation pay is computed based on the number of accrued but unused vacation days for the year of termination, and salary at termination. Executive life is computed based on the cost of life insurance premiums above $50,000, the tax-free limit on group term life insurance.

Personal Benefits Included in All Other Compensation																				Other Amounts Included in All Other Compensation
					Corporate									Financial			Tax					Company						Payment
		Corporate-owned			car and			Personal security			Home			planning			preparation					contributions			Executive life			for
		aircraft			driver			services			security system			services			services					to savings plans			insurance			Unused vacation
Hassan		$	142,444		$	1,221		$	134,305		$	4,970		$	0		$	0		Hassan		$	266,392		$	83,595		$	0
Bertolini			0			4,611			0			572			5,000			2,500		Bertolini			96,766			28,263			0
Cox			51,059			2,279			0			716			2,500			2,500		Cox			121,790			41,916			0
Koestler			0			1,245			0			9,959			0			0		Koestler			62,213			44,126			0
Kohan			0			4,956			0			0			6,275			2,500		Kohan			46,113			38,987			0
Sabatino			0			554			0			8,467			5,000			2,500		Sabatino			81,041			34,871			0
Pickett			4,062			2,577			0			1,303			5,000			2,500		Pickett			76,693			102,650			7,404

(7)		Pickett retired from Schering-Plough on August 31, 2006. Upon his retirement from Schering-Plough, Pickett forfeited 35,000 performance-based deferred stock units and forfeited a stock option to purchase 215,000 shares, which awards were granted in May 2006.

 

GRANTS OF PLAN-BASED AWARDS TABLE

																							All Other
																				All Other			Option Awards:						Grant Date
														Estimated Future Payouts						Stock Awards:			Number of			Exercise or			Fair Value of
					Estimated Possible Payouts Under									Under Equity Incentive						Number of			Securities			Base Price			Stock and
					Non-Equity Incentive Plan Awards (1)									Plan Awards (2)						Shares of			Underlying			of Option			Options
		Grant			Threshold			Target			Maximum			Threshold			Target			Stock or			Options			Awards			Awards
Name		Date			($)			($)			($)			(#)			(#)			Units (#) (4)			(#) (5)			($/Sh)			($)
Fred Hassan			1/1/06		$	0		$	2,087,500		$	4,175,000
			5/19/06												0			200,000								$	19.23		$	1,040,500
			5/19/06																					800,000			19.23			4,162,000
			5/19/06												0			200,000												3,846,000
Robert J. Bertolini			1/1/06			0			700,000			1,400,000
			5/19/06												0			48,000									19.23			249,720
			5/19/06																					192,000			19.23			998,880
			5/19/06												0			40,000												769,200
Carrie S. Cox			1/1/06			0			800,000			1,600,000
			5/19/06												0			75,000									19.23			390,188
			5/19/06																					300,000			19.23			1,560,750
			5/19/06												0			70,000												1,346,100
Thomas P. Koestler, Ph.D.			1/1/06			0			490,000			980,000
			4/1/06																		75,000									1,427,250
			5/19/06																					90,000			19.23			468,225
			5/19/06												0						14,000									269,220