Street Talk: CEO Paychecks: How They Are Determined - A "pay-for-hay" performance culture is embedded in the industry's DNA. - BioPharm International

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Street Talk: CEO Paychecks: How They Are Determined
A "pay-for-hay" performance culture is embedded in the industry's DNA.


BioPharm International
Volume 20, Issue 2

LOWER TARGETS

Still, there is the school of thought that if you are a CEO burdened with the pressure of taking a biopharm company airborne, then you deserve all of the milk and honey you can get. Right now, on average, CEO compensation (as defined by salary and bonuses) isn't as much as you might think, about $600,000.

And for every McKinnell there is a Kevin Sharer, CEO of Amgen, who received an annual bonus package of about $5 million—that's $1.5 million short of McKinnell's annual pension. According to a 2005 BioWorld Survey, there are 27 life sciences executives whose total compensation (salary, bonus, stock options, and other pay) exceeded $2 million in 2004. That year only saw 15 CEOs take home $1 million or more.

Of course, when you add those stock options, CEO pay goes up significantly. According to the BioWorld survey, life sciences CEOs garnered an average of 4.56% of their companies' stock, including a select group of 12 CEOs who enjoy between 15% and 69% of their companies' shares.

That's not so different from other industries like technology or telecommunications. But what makes the biopharm industry unique is that a "pay-for-performance" culture is embedded in the industry's DNA. The pay-for-hay mentality is always going to be more prominent in an industry like life sciences that offers a host of younger companies in an endless search for profitability.

That just makes sense in an industry that has longer production cycle times than other markets. Hence the need for savvy CEOs who can guide a new drug through the pipeline in timely and profitable fashion. And thus the reason for CEO pay packages that offer stock options and other non cash-based incentives to spur CEOs to greater heights. Biopharm boards are also taking more direct links to the pay-for-performance approach, with pay tied to performance benchmarks like clinical trial completions and patent filings.

Celebrity author and business/finance commentator for CNN and Fox News, Brian O'Connell has written for The Wall Street Journal and Newsweek, 267.880.3144


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