Biotech Layoffs Often Go Hand-In-Hand With CEO Pay Raises

Published: Sep 26, 2014

Biotech Layoffs Often Go Hand-In-Hand With CEO Pay Raises

September 22, 2014

By Jessica Wilson, Breaking News Staff

In the persistent struggle to raise their companies’ stock prices, CEOs relentlessly search for the most effective strategies to bring value to a company while keeping the bottom line lean and mean. But mounting evidence suggests that too often resources are sacrificed while executive compensation only continues to gain.

There are 14 companies in the S&P 500 that have “methodically eliminated jobs each and every year for the past five fiscal years," including brand name giants like Lockheed Martin and Safeway. By and large, the market has rewarded them for it: They now have stocks that have outperformed the S&P market by gaining an average 269 percent over the last five years.

But with those gains comes some significant downside, particularly for workers. While Wall Street may be rewarding companies for slashing lower level jobs, it appears shareholders have been paying a steep price elsewhere as executive compensation booms.

So has that trend seeped into biotech? A recent investigation by BioSpace has found that in many cases, yes.
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In an analysis that looked at large biotech firms, there are five companies that show a correlation of large layoffs with an increase in the CEO’s total compensation: AbbVie , Bristol-Myers Squibb Company , Novartis , Roche , and Sanofi . In fact, four out of the five were so notorious that they made it to the list of the “Top 15 Job-Cutting Companies of 2013 (So Far)” compiled by Gen, the Genetic Engineering & Biotechnology News site.

Here are the details:


Abbvie CEO AbbVie , the Chicago-based biopharmaceutical company terminated 96 jobs between June and December 2013. In addition, 26 jobs were eliminated when the company let go of the entire sales force of its lipid franchise because its patents expired. The company made the cuts as part of its restructuring of operations after AbbVie’s spin off from Abbott in January 2013. It paid $9 million in employee severance and contractual obligations.

AbbVie’s Chief Executive Officer Richard Gonzalez earned $18.2 million total compensation in 2013, according to Crain’s Chicago Business, more than double his $7.95 million salary in 2012, and a new high for the company’s executive compensation. In this particular case, the metrics are a bit tricky: Gonzalez’s 2012 compensation covered the year he was running AbbVie before it became an independent company on January 1, 2013—but his $18.2 million still exceeds the salary of the majority of CEOs in the industry.

Repeated requests for comment from AbbVie were not returned.


Bristol-Myers CEO Bristol-Myers Squibb Company , the New York City-based pharmaceutical company, cut nearly 400 jobs in 2013, many located in San Diego where Amylin Pharmaceuticals was headquartered before Bristol-Myers Squibb purchased the company in 2012. The company cut jobs in an effort to eliminate redundancies and increase efficiency after the Amylin acquisition, it said—corporate code for trimming the fat from a balance sheet.

But in a contradictory move, Lamberto Adreotti, CEO of Bristol-Myers Squibb, saw his total compensation increase $3.65 million from 2012 to 2013.

According to an article in Genetic Engineering & Biotechnology News (GEN) “What the Top 15 Biopharma CEOs Are Making," Adreotti earned a total compensation of $17.2 million in 2012, and according to proxy statements filed for the 2013 fiscal year, he earned $20.85 million in 2013.

When reached for comment about lay-offs and company re-organization, a spokesperson for Bristol-Myers, Ken Dominski, declined to comment.


Novartis CEO Novartis , the Switzerland-based multinational pharmaceutical company, made the "Top 15 Job-Cutting Companies of 2013" list with a total of 682 positions cut by July 2013. As BioSpace reported two months ago, “The layoffs are part of a reorganization process as the company is reportedly trending toward a CRO-based model for Global Clinical Operations,” with more expected in September and possibly November.

However, during the same time period Joe Jimenez, CEO of Novartis, saw his pay increase from $14.2 million in 2012 to $16 million in 2013—an $1.8 million pay raise for 12 months work.

According to, the international service of the Swiss Broadcasting Corporation (SBC), Jimenez is the highest paid CEO of Switzerland’s publicly traded companies.

When reached for comment about job lay-offs and company re-organization, Eric Althoff, a spokesperson for Novartis said, “We are a culture of continuous improvement and, as such, we always are looking for ways to improve our productivity so that we can free up resources for further investments into innovation and growth.” He continued, "We are not looking to cut costs to save, but are planning to make the investments necessary to sustain long-term growth.” He further stated that, “While this may or may not include pockets of downsizing in areas where productivity must be increased, we are simply pursuing a business strategy that best positions our organizations for sustained long-term success. Productivity re-evaluation in all areas of business may or may not include events of downsizing in areas where there is room for improvement. No company, including ours, can rule out the possibility of future layoffs.”


Roche CEO Roche , the Basel, Switzerland-based global healthcare company made the list because its 454 Life Sciences subsidiary eliminated 110 jobs in Germany in the Fall of 2013 and 60 positions in Branford, Conn. The company said it eliminated its Applied Sciences Business Area (within its diagnostic division) because of rising drug costs and a shrinking market due to federal budget cuts.

But the company found funds to pay Severin Schwan, CEO of Roche, who earned $13.46 million in 2012 and $13.54 million in 2013. While Schwan received a smaller raise than others on this list—$80,000—according to the SBC, Schwan joins Jimenez as one of the nation's highest paid execs.

When reached for a comment about job lay-offs and company re-organization, a spokesperson for Roche, Claudia Schmitt, directed the author of this article to a press release Roche put out in April 2013 after the dissolution of its Applied Science Business Area. In the press release, Roche said the decision “would streamline decision-making and enhance technology flow from research use to the clinical setting.”

“The price pressure and funding cuts in life-science research that have been features of the market environment for some time now are expected to continue," it stated. "The organizational arrangements Roche is introducing are designed to further improve productivity and enhance the market responsiveness of its life-science business, which currently accounts for about 7 percent of total Diagnostics sales.” The company added it would pursue the job elimination “with all care” and was committed “to finding socially responsible solutions for the affected employees.”


Abbvie CEO Sanofi , the Paris-based multinational pharmaceutical company, eliminated 840 positions in 2013. Originally, CEO Christopher Viehbacher wanted to cut 2,500 jobs, but France's traditionally strong unions, as well as the French government, strenuously opposed this plan, as well as a proposal to shutter Sanofi’s French R&D operations in Toulouse. The French government directed Sanofi to negotiate with the unions before closing the plant. After doing so, Sanofi eventually reversed its decision and the plant remains in operation—with the caveat that it will eliminate jobs there in the near future.

In contrast, in 2012, Viehbacher’s compensation totaled $9.91 million and $11.45 million in 2013, which is an increase of $1.54 million.

Repeated attempts to contact Sanofi for a comment were neither acknowledged nor answered by the company.

Only time will tell if these combinations of layoffs and CEO pay raises will yield a positive result for AbbVie, Bristol-Myers Squibb, Novartis, Roche, or Sanofi. Layoffs may achieve short-to-medium term positive effects; however, these benefits are often not borne out in the long-term.

Wayne Cascio, a professor at the University of Colorado's business school, has examined the data of several companies for up to nine years after their downsizing events. His findings show that on the whole, companies that make severe cuts do not come out ahead of those committed to keeping their workforces intact.

“As a group, the downsizers never outperform the non-downsizers. Companies that simply reduce headcounts, without making other changes, rarely achieve the long-term success they desire," he wrote in the Motley Fool.

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