GlaxoSmithKline May Need To Sweeten the Pot to Lure in A New CEO
April 20, 2016
By Mark Terry, BioSpace.com Breaking News Staff
In a year marked in the U.S. by a presidential election that has focused on, among many issues, income disparity and drug pricing, it’s interesting to watch the UK’s GlaxoSmithKline admit it might have to significantly increase its executive pay in order to find a replacement for Andrew Witty, who will be stepping down as the company’s chief executive officer in March 2017.
Witty, according to information culled from company annual reports by Bloomberg, made about $9.6 million last year. This is about half of what Pfizer (PFE)’s Ian Read made. Witty’s compensation is eighth out of the chief executives of the top eight drug companies in the world.
Some of that is simply related to performance, in as much as executive compensation is directly linked to performance rather than less tangible factors. In February 2015, Bloomberg noted that Witty’s total compensation was cut by 46 percent over the previous year as the result of slumping sales.
At that time, his annual bonus had been cut 51 percent to about $1.41 million, even though his salary had risen 2.6 percent to 1.09 million pounds. Bloomberg at that time wrote that, “The pay cut reflects Witty’s struggle to halt a slide in U.S. market share for Advair, its top-selling asthma medication, and failure to win over doctors and insurers for products designed to replace it. Shares of Glaxo fell 8 percent in the past year as the drugmaker was also battered by a bribery scandal in China that resulted in a 297 million-pounds fine.”
At the time, Simon Steel, a spokesman for GSK, told Bloomberg, “The vast majority of the chief executive officer’s remuneration is based on meeting stretching performance targets. The board recognized the challenging year the group has face but it also recognized the good progress management has made.”
And now that Witty is stepping down, the company is deciding whether it needs to throw money at a possible new executive in order to entice top talent. According to Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, GSK is discussing a performance-based bonus that could be up to nine times the base salary in the first year for the new chief executive. That would essentially be 50 percent more than Witty’s maximum performance-based compensation.
“What companies say—and we are sensitive to this—is that they often do feel the need to compete with U.S. pharmaceuticals, who pay a lot more,” Claxton told Bloomberg. “This would be a drop in the bucket for some of their pay packages.”
Witty’s compensation was also low in comparison to European drug executives. Shire ’s chief executive, Flemming Ornskov, brought in $21.6 million, although that’s at least partially because the company chose to increase his compensation last summer by 422 percent over worries he might be headhunted by another company.
Although there’s certainly public concerns regarding executive compensation in the U.S., apparently this is expanding into the U.K. as well, although it’s probable that some version of this concern has been in existence since before Marie Antoinette and the French Revolution. Bloomberg reports that investors with BP plc and medical-device company Smith & Nephew opposed recent executive pay plans, and that Shire’s annual shareholder meeting at the end of this month may face similar pushback. “Shire investors have been urged by Institutional Shareholder Services and Glass Lewis, shareholder advisory firms, to vote against remuneration plans,” reported Bloomberg.
The topic of executive compensation has been closer to the surface lately, partly because of the political season, partly because of public sentiment, and likely because it’s annual reporting season. Earlier this month, after the Pfizer -Allergan deal collapsed, it was reported that three Pfizer executives received $1 million bonuses tied to the deal.
These bonuses, dubbed “retention awards,” were given to Mikael Dolsten, president of worldwide research and development at Pfizer, John Young, group president of global established pharma business, and Albert Bourla, head of global innovative pharma business.
The Pfizer board had indicated in a March 15 proxy statement that the retention awards were given to the executives because they believed they “would have an important role in consummating the combination with Allergan (AGN) and successfully integrating the two businesses.” And the awards would be given even if, as did happen, the merger was canceled. Basically they were awarded $1 million for not losing their jobs.
There were also similar reports concerning the Pfizer-Allergan deal regarding bonuses related to the merger. Pfizer’s top five executives were eligible for bonuses totaling $300 million if any of them did not have a job after the merger.
It was also reported that Ian Read, Pfizer’s chief executive, received less compensation this year than in the previous year. His salary, bonus and incentive pay was about $18 million, down from about $23 million in 2014. Some of that is related to a cut in stock rewards.