Blog | January 21, 2015

So, You Want To Be Top Earning Healthcare CEO? Shoot For Biopharma

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

money

In 2012, Pfizer’s CEO Ian Read held the title of being the highest-paid CEO of a large pharmaceutical company, bringing roughly $26 million to the bank. His salary was $21 million more than the lowest paid large pharmaceutical CEO, NovoNordisk’s Lars Rebien Soerensen, who earned $5 million, Bloomberg reported in the spring of 2013.

However, some more numbers released in June of 2014 are showing that, in 2013, Pfizer’s Read stepped aside and earned less than what several of his CEO peers in the biopharma space are making, even though Pfizer raked in $52 billion in revenue for the year.

There were 16 public pharmaceutical companies that made it into the list of the top 200 highest-paid CEOs, according to the New York Times/Equilar CEO 2013 pay survey in 2013. Those falling in the top 100 of the list include:

  • 10: Martine Rothblatt of United Therapeutics (UT) at $38.2 million. (On a side note: For more information about Martine’s work at UT and her role in the emerging “transhumanist” movement that could be poised to shape the future of the pharma industry, be sure to check out this recent New York Magazine article. )
  • 13: Leonard Schleifer of Regeneron Pharmaceuticals at $36.3 million. In Fierce Pharma’s 2012 survey of biopharma CEO salaries, Schleifer was ranked the highest paid biopharma CEO for 2012, having earned $30 million for the year. 
  • 54: Robert J. Hugin of Celgene at $21 million
  • 55: Lamberto Andreotti of Bristol-Myers Squibb at $20.8 million
  • 60: Miles White of Abbott Laboratories at $20.5 million
  • 86: Richard Gonzalez of AbbVie at $18.1 million
  • 92: Ian Read of Pfizer at $17.7 million

Other pharma companies present in the second half of the list were Baxter International, Gilead Sciences, Biogen Idec, Amgen, and Merck, among others. The full pay survey can be found here.

In his recent article in Fortune, Paul Hodgson hones in on the fact that higher revenue totals for the company do not necessarily result in a higher salary for the CEO. Celgene, for instance, brought in $6.5 billion in 2013 compared to Bristol-Myers Squibb’s $16.4 billion — but Celgene’s Hugin earned more than BMS’ Andreotti. And, as mentioned before, Pfizer’s Read brought in less than these smaller players, despite Pfizer’s $52 billion in revenue for 2013.

According to Hodgson, many of these biopharma CEOs are “paid like entrepreneurs, or rather like a hybrid of entrepreneurs and blue chip company CEOs, giving these executives the best of both worlds…Most of these CEOs were paid a base salary of $1.5 million, not a typical rate for an entrepreneur. Add in stock option grants, other stock awards, and cash bonuses, and most received annual compensation of around $15 million a year. Take out the estimated value of equity awards and add in the realized value of equity pay — actual stock option profits and vested stock awards — and the compensation of most of these CEOs more than doubles.”

While CEOs are certainly benefitting from stock options as a pay tool, Hodgson brings up an interesting point: Where does the strength and growth of the company’s pipeline fit in here? Some companies — including Celgene, Gilead, and Biogen Idec — have policies that partially link a CEO’s performance to the company’s productivity with drug development, but not long term. Stock price growth could occur in response to the industry’s faith in emerging, promising drugs, which could encourage and reward more productivity.

However, Hodgson argues that in the end, the pharma industry and long-term investors would best be served if companies’ pipelines continued to be stocked with new drugs. Therefore, a CEOs performance would best be measured against their company’s R&D progress. (Could be an interesting model for the industry as many of the major players are restructuring and slimming down their R&D operations. But we’re an industry that likes to innovate and be challenged, right?)

While it’s far from black and white when it comes to determining the value of a job and its duties, I’m inclined to fall on the same side of the argument as Hodgson, especially considering the constant media buzz about expiring patents, dwindling pipelines, and let’s not forget the increasing number of patients turning to medicines to improve quality of life. For an industry that is devoted to serving patients’ needs, it only seems right that the value of a CEO in this industry should be more closely linked to a company’s pipeline.