Opinion

The established pharma industry (by which I mean the profitable and sustainably cash generative companies) may appear to be less troubled than most industries by the fallout from the recession but one

The established pharma industry (by which I mean the profitable and sustainably cash generative companies) may appear to be less troubled than most industries by the fallout from the recession but one issue which should give particular pause for thought is that of Executive compensation and the role of Remuneration Committees. Having spent some months as Chair of a RemCom in 2008 I was obliged to contemplate what is fair compensation for an executive team and how that is aligned with shareholder interests. The revelations of the fabulous payouts for failed Bankers perhaps crystallises the realisation that compensation has moved completely out of line with what most people deem to be fair reward for the risks involved. Although all Remuneration Committees should have policies and performance-related formulae that trigger cash and share payouts the numbers below, which represent 2007 remuneration for CEOs (from the Fierce Pharma website http://www.fiercepharma.com/special-reports/top-17-paychecks-big-pharma)raise legitimate questions about whether the performance triggers are demanding enough in some cases.

1. Miles White - Abbott - $33.4M
2. Fred Hassan - Schering-Plough - $30.1M
3. Bill Weldon - Johnson & Johnson - $25.1M
4. Bob Essner - Wyeth - $24.1M
5. Robert Parkinson - Baxter - $17.6M
6. Daniel Vasella - Novartis - $15.5M
7. Richard Clark - Merck - $14.5M
8. Frank Baldino - Cephalon - $13.5M
9. Sidney Taurel - Eli Lilly - $13M
10. Jeff Kindler - Pfizer - $12.6M
11. Jim Cornelius - Bristol-Myers Squibb - $11.3
12. Franz Humer - Roche - $11.1M
13. Robert Coury - Mylan - $8.5M
14. Jean-Pierre Garnier - GlaxoSmithKline - $6M
15. Werner Wenning - Bayer - $4.77M
16. David Brennan - AstraZeneca - $4.3M
17. Gerard Le Fur - Sanofi-Aventis - $3.27M

Just as the interests of the pharmaceutical industry should be aligned with the needs of society so should the remuneration of executives be aligned with the long term interests of their companies' shareholders. I stress long term since some of the short termist corporate behaviours that pushed up profits in the 1990s have been punished by subsequent lacklustre performance. Investors, including our pension funds, have definitely suffered as a result but there seems little evidence from the remuneration figures that executives are sharing the financial pain. I suspect that RemComs will be rethinking their performance triggers or risk drawing some of the fire from the banking colleagues.