Biotech Executive Salaries on the Rise

[Dave Jensen]

There is an interesting report in The Scientist, November 22nd, about biotech executive salaries. While we don't generally discuss salary questions on this site, I think it may be an interesting discussion.

Biotech exec's salaries have risen a great deal. I'll give you some examples below. As you read these, try not to get too ticked off. These are huge figures . . . While I hate to be labeled a "trouble maker," I would personally suggest that these salaries don't reflect the fact that postdocs and young scientists still earn very little in comparison to other fields of endeavor. What are YOUR thoughts about this discrepancy?

Arthur Levinson, CEO, Genentech, $23 million last year . . .
Henri Termeer, CEO, Genzyme, $19.1 million . . .

And the list goes on and on.


Dave Jensen, Moderator
CareerTrax Inc.

[Don Haut]

Dave,

This will likely be a somewhat unpopular opinion but...

I 'm not sure I understand the facts you are reporting. According to the DNA proxy statement for last year, Levinson's salary was closer to $2M, not $23M. I am certain he recieved options as part of his comp package, but I do not believe he recieved $21M worth. I see from the SEC documents that he exercised approximately $21M worth of options last year, but I believe that they had been accrued over a number of years. In fact, it is very likely that those options exercised last year were accrued as part of comp packages quite a while ago (as you know, companies are not allowed to grant "in the money" options to anyone, only options that are "under water"). So of the $23M in pay last year, nearly 90% was what we would call "at risk" pay and it was earned as a result of stock appreciation which means that Levinson's incentives are aligned with those of the shareholders of the company.

Finally, I think it should be noted that Levinson started with Genentech as a staff scientist in 1980 and has risen through the ranks on the strength of his good judgement and strong leadership. The lesson here for me is that it can be done - despite the somewhat low pay in the beginning.

Don

[Dave Jensen]

Hi Don,

I was reporting from the article on this topic in The Scientist, page 48 from the Nov 22nd issue. Genentech's Levinson got a salary of $860K with a bonus of $1.2 million, and 2003 stock options worth $21 million. Termeer's base pay was $1.2 million, his bonus $1.6 million, and his 2003 stock options granted him were worth $16.2 million. Thanks for asking for clarification.

I'm also glad you pointed out Dr. Levinson's history of rising from the scientist rank to run the company.

As you might imagine, Don, my post came because I was absolutely blown away by the size of these numbers. In my opinion, CEO earnings are just way out of line, in all industries. Not trying to pick on Genentech or Genzyme, these are great companies. But I really can't see why they need to compensate at these levels in order to attract the best people.

Dave

[Nikos]

Dave,

While I agree with you that indeed salaries for CEOs are dramatically high, it is likely that they will only continue to get larger for the biotech sector. After reading the article in the Scientist it appears as if biotech companies are attempting to hire executives from big Pharma as CEOs for their biotech firms, and these individuals are asking for exorbitant salaries, consistent with those of other Pharma CEOs. Additionally, I think that as as the biotech sector increasingly matures, the salaries will continue to rise and perhaps someday match those of individuals in other fields such as IT and even retail.

Nevertheless, as Don mentioned it is refreshing to see that Dr. Levinson worked his way up through the corporate ladder into the position that he has earned this day. Also, being that his total compensation is largely comprised of money he has received in stock options, it is a testament to how successful Genentech has been in the last couple of years as one of the only fully integrated biotech companies uner his leadership.

Nick

[Dave Jensen]

Good comments, Nick and Don.

It was interesting to note that the same article noted a trend in that R&D executives have actually gone DOWN in salary, at this time when CEO's are rising so rapidly.

Does this say anything about the value of science in biotech co's?

Dave Jensen, Moderator

[Shawn Baker]

I think what's discouraging to the "rank and file" is that executives tend to get a large chunk of options every year. Therefore, it doesn't really matter if the stock does well over time - it just needs to do well over the period of a single year. In fact, if they do poorly one year (and the stock price reflects that), they are rewarded because the new options they receive will be at a lower price. All they have to do is bring the stock up to where it should have been and they make outrageous sums of money.
This is in contrast with the lower level employees who typically get the largest chunk of options when they first join the company. If the stock goes down after they join, their options become worthless and they generally don?t get new ones to ease the pain.
(As Dave mentioned, I?m not picking on Genentech or Genzyme ? I?m talking in generalities.)

Shawn

[Alex]

These salaries barely make up for the tragic loss of academic freedom and collegiate scientific stimulation these people have had to endure since joining industry...it's only fair, right? :-)

They have wasted their PhDs in order to run companies that make life-saving drugs, employ throusands, stimulate the economy, make investors millions, etc...their PhD advisors must be ashamed.

Speaking of which, how about all the distinguished professors loaded with stock options in biotech companies spun off from Universities and often built on technologies developed on the backs of students and postdocs? They get to keep their tenured jobs AND get rewarded handsomely if these companies do well.

I really don't have anything against that either, I am all for fair capitalism... just trying to show that everyone is out for their own piece of the pie. Oh and check this out:

Top College President Salaries Approaching $1 Million, New Survey Reports

http://www.acenet.edu/hena/readArticle.cfm?articleID=199

[Jeff]

More data:
Study: CEOs of young biotechs in New England earn more
An annual survey by a Boston headhunting firm says CEOs of young biotech and medical-device firms in New England earned about $327,000 last year -- about 6% more than their rivals -- and also received about 10% more of their companies' equity than the national average. The president of the search firm said bonuses also are up nationally because most of the firms have drugs halfway through the FDA pipeline and highly paid scientist-CEOs are being actively recruited to guide them to market. Boston Herald (11/30)