Vertex CEO Took a 23% Pay Cut in 2015 as Firm Overhauls Compensation Policies

Vertex CEO Took a 23% Pay Cut in 2015 as Firm Overhauls Compensation Policies April 29, 2016
By Alex Keown, Breaking News Staff

BOSTON – Jeff Leiden, chief executive officer of Vertex Pharmaceuticals , took a 23 percent pay cut last year following criticism that the company’s executive pay was too high.

Citing regulatory filings with the U.S. Securities and Exchange Commission, the Boston Business Journal reported Leiden took home compensation of $28 million, which included a salary of $4.8 million and the remainder from stock options. Leiden’s 2015 compensation was down from 2014, when he took home total compensation of $36.6 million, which included a retention bonus of $14.9 million.

The changes to executive compensation “contributed to a 27 percent decline in total compensation for Vertex's top-five executives in 2015,” the Journal said. Because of those changes, the executive leadership committee earned a combined $66 million in total compensation for 2015, in comparison to $91 million in total compensation in 2014.

"We have adopted significant changes to our executive compensation program, and in particular, to the equity compensation component, which were implemented in early 2016. The new equity compensation program reflects fundamental changes in our business and financial profile and feedback we received from our shareholders," Vertex said in its filing, according to the Journal.

During a shareholder meeting last June, Institutional Shareholder Services Inc., a corporate governance adviser, recommended shareholders cast a non-binding vote of disapproval at the company’s annual meeting. Glass Lewis & Co., another advisory firm, also issued a report criticizing the Boston-based pharmaceutical company’s executive pay plan.

“The total level of CEO pay is excessive and is not contingent upon rigorous performance conditions,” ISS told shareholders.

Initially, a Vertex spokesperson said the compensation packages are necessary to retain top talent while the company awaits regulatory approval for a cystic fibrosis drug and other treatments. However, the Boston Business Journal reported this year the company decided to change the way it compensates executives. The Journal said Vertex is issuing more restricted stock to the executives, rather than stock options. The options will make up 30 percent of executive pay going forward, the Journal reported.

Vertex has not been profitable since 2012, nor is it estimated to make a profit until 2016. In its 26 year history, Vertex has earned an annual profit only one time. The company’s fortunes are built on cystic fibrosis treatments. Last year sales for Kalydeco hit $632 million. The drug has been granted label extensions, so it could earn more in 2016. Another cystic fibrosis drug Orkambi, which was approved in the last half of 2015, generated $220 million in sales during the fourth quarter.

Vertex is not the only company to reduce executive compensation. In March 2015, Regeneron Biopharmaceuticals, the maker of vision-loss drug Eylea, announced it was cutting perks and expenses for Chief Executive Officer Leonard Schleifer and Chief Scientific Officer George Yancopoulos, part of a move aimed at simplifying executive compensation packets. In a filing with the Securities and Exchange Commission, Regeneron said the benefits “were no longer consistent with our overall compensation program.”

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