How biotech and pharma companies pay their CEOs, and their workers
Chief executives of drugmakers large and small received hefty pay increases over the past two years, shaking off persistent public criticism of the industry to capitalize on strong stock market performance.
Compared to high drug prices, rising executive compensation at biotechnology and pharmaceutical companies has passed without as much scrutiny, even as CEOs benefit handsomely from the sector's steady growth.
The median CEO of the drug companies analyzed by BioPharma Dive earned about 50% more last year than in 2017, a leap that outpaced the more modest pay gains of their employees.
The upswing was broad-based, driven both by sharply higher pay among leaders of smaller, research-focused biotechs, as well as by healthy increases for those at more sizable companies.
BioPharma Dive's findings were drawn from total compensation figures reported in regulatory filings this year by some 230 drugmakers — a group that represents many of the publicly traded biotechs and prominent pharmaceutical firms like Johnson & Johnson, Pfizer and Merck & Co.
Median compensation for industry CEOs and their employees
Displayed is 2019 pay for 225 biotech and pharma CEOs, as well as for the median employee at 124 corresponding companies.
Each rectangle represents a CEO (top) or median employee (bottom). The interval stripes at the base depict the quartile ranges of pay.
Last year, CEO pay, which includes stock grants and bonuses as well as salary, ranged from a low of $365,725 (Krystal Biotech) to a high of $45,635,037 (United Therapeutics).
The median was $4.8 million, while the average was just under $7 million.
Median employee pay, which can also include bonuses or other benefits, ranged from $41,455 (Opko Health) to $791,000 (Madrigal).
Median pay of the median employees — a rough estimate rather than a precise figure — was $194,000, while the average was slightly higher at $205,000.
Large pharma companies, with their vast workforces, often have wide gaps between what their CEO is paid and what their employees take home.
Pharma CEOs are usually paid more than what other CEOs in the industry typically make, sometimes substantially so. By contrast, the median pharma employee is comparatively less well compensated than those of many biotechs.
Johnson & Johnson's Alex Gorsky, for instance, received $25 million in total pay last year, compared to $76,000 for the company's median worker.
The recent gains in pay for industry CEOs have come during a period in which biotech stocks reached record levels. Measured from a five-year low in February 2016, the S&P Biotech index rose 160% to set an all-time high in late July this year. The story is similar, if not as dramatic, for a Nasdaq index of the sector.
Biotech and pharmaceutical company shares had tumbled downwards with the broader market in March and April, as the coronavirus pandemic shook the global economy. But they've since gained back more than they lost as progress on treatments and vaccines has raised the industry's profile.
Surging share prices are good for executive pay, which is largely composed of stock grants designed to align executives' interests with shareholders. These grants can be quite large, particularly for newly installed CEOs or when employment contracts are renewed.
UroGen CEO Elizabeth Barrett, for instance, was granted 317,000 shares in the company and an option to purchase 277,000 more as a one-time "sign-on" award valued at roughly $24 million — 35 times her base salary. Both the shares and the options vest over three years.
Pay packages for many CEOs, therefore, are often lumpy, growing by millions or tens of millions of dollars one year, and falling the next.
The sums that companies report paying their CEOs don't always reflect the value executives might gain in a given year, either. Stock granted in the past may vest in waves, or a CEO may buy new shares by exercising options awarded previously. If share prices have increased since the original award, a CEO could earn much more than originally cited by their companies.
Companies report these totals on an annual basis as well, calculating the value "realized" by an executive. For long-tenured CEOs who've accrued stock and option awards year after year, these figures can be much larger than a year's total compensation.
Regeneron CEO Leonard Schleifer, for example, last year exercised previously granted options to acquire nearly 313,000 shares in the biotech, worth some $111 million.
Previously granted stock, option awards can add up for CEOs
|Company||CEO||Value of stock options exercised||Value of stock awards vested||Total value realized|
|Regeneron||CEO: Leonard Schleifer||Value of stock options exercised: $111,224,257||Value of stock awards vested: $0||Total value realized: $111,224,257|
|Vertex||CEO: Jeffrey Leiden||Value of stock options exercised: $47,520,184||Value of stock awards vested: $30,172,926||Total value realized: $77,693,110|
|Novocure||CEO: Asaf Danziger||Value of stock options exercised: $58,301,096||Value of stock awards vested: $3,336,770||Total value realized: $61,637,866|
|Allogene||CEO: David Chang||Value of stock options exercised: $0||Value of stock awards vested: $49,012,433||Total value realized: $49,012,433|
|Merck & Co.||CEO: Ken Frazier||Value of stock options exercised: $28,284,571||Value of stock awards vested: $15,602,239||Total value realized: $43,886,810|
|Sage||CEO: Jeffrey M. Jonas||Value of stock options exercised: $29,441,734||Value of stock awards vested: $806,900||Total value realized: $30,248,634|
|Amarin||CEO: John Thero||Value of stock options exercised: $2,787,458||Value of stock awards vested: $25,842,145||Total value realized: $28,629,603|
|Seattle Genetics||CEO: Clay Siegall||Value of stock options exercised: $19,575,954||Value of stock awards vested: $7,127,229||Total value realized: $26,703,183|
|Eli Lilly||CEO: David Ricks||Value of stock options exercised: $20,275,780||Value of stock awards vested: $1,464,929||Total value realized: $21,740,709|
|BioMarin||CEO: Jean-Jacques Bienaime||Value of stock options exercised: $8,365,069||Value of stock awards vested: $8,634,683||Total value realized: $16,999,752|
|Johnson & Johnson||CEO: Alex Gorsky||Value of stock options exercised: $0||Value of stock awards vested: $15,261,032||Total value realized: $15,261,032|
|Fibrogen||CEO: Thomas Neff||Value of stock options exercised: $12,253,391||Value of stock awards vested: $2,617,984||Total value realized: $14,871,375|
|AbbVie||CEO: Richard Gonzalez||Value of stock options exercised: $0||Value of stock awards vested: $13,071,601||Total value realized: $13,071,601|
|Global Blood||CEO: Ted Love||Value of stock options exercised: $0||Value of stock awards vested: $12,889,776||Total value realized: $12,889,776|
|Amgen||CEO: Robert Bradway||Value of stock options exercised: $0||Value of stock awards vested: $12,559,278||Total value realized: $12,559,278|
|Nektar||CEO: Howard Robin||Value of stock options exercised: $9,520,482||Value of stock awards vested: $2,830,619||Total value realized: $12,351,101|
|Alkermes||CEO: Richard F. Pops||Value of stock options exercised: $10,299,180||Value of stock awards vested: $1,816,413||Total value realized: $12,115,593|
|Exelixis||CEO: Michael M. Morrissey||Value of stock options exercised: $10,950,945||Value of stock awards vested: $1,145,044||Total value realized: $12,095,989|
|Arrowhead||CEO: Christopher Anzalone||Value of stock options exercised: $3,723,993||Value of stock awards vested: $7,425,050||Total value realized: $11,149,043|
|Sarepta||CEO: Douglas Ingram||Value of stock options exercised: $10,807,100||Value of stock awards vested: $0||Total value realized: $10,807,100|
|Horizon||CEO: Timothy P. Walbert||Value of stock options exercised: $6,922,824||Value of stock awards vested: $3,118,977||Total value realized: $10,041,801|
|ChemoCentryx||CEO: Thomas J. Schall||Value of stock options exercised: $8,419,339||Value of stock awards vested: $1,054,637||Total value realized: $9,473,976|
|Neurocrine||CEO: Kevin C. Gorman||Value of stock options exercised: $7,121,642||Value of stock awards vested: $2,157,761||Total value realized: $9,279,403|
|United Therapeutics||CEO: Martine Rothblatt||Value of stock options exercised: $9,183,928||Value of stock awards vested: $0||Total value realized: $9,183,928|
|Bristol-Myers Squibb||CEO: Giovanni Caforio||Value of stock options exercised: $0||Value of stock awards vested: $8,570,410||Total value realized: $8,570,410|
Compared to top CEOs in other industries, biopharmaceutical executives aren't necessarily outliers, however. The best compensated biotech CEO by total annual pay in 2019, United Therapeutics' Martine Rothblatt, would rank 7th among all chief executives in the S&P 500, according to data compiled by The Wall Street Journal.
The 10th best paid drugmaker CEO in BioPharma Dive's data set, Amgen's Robert Bradway, ranks 83rd.
Yet, unlike in other business sectors, the gap between CEO and median employee compensation is generally much more modest at all but the largest pharmas. That's because biotech workforces, particularly those filled with scientists and researchers, are well paid: median compensation topped $200,000 at nearly half of the 124 companies reporting data.
How CEO pay compares with median employee compensation
Under the Dodd-Frank Act, companies are generally required to disclose what's known as the "CEO Pay Ratio," a comparison between executive pay and median employee pay. The ratio roughly describes how many times greater CEO pay is than employee pay.
In this scatter plot, CEO pay (on the y axis) is plotted against employee pay (on the x axis).
Among the 124 companies in the dataset that reported the metric, the median CEO pay ratio is 31:1. In other words, CEO pay is 31 times that of the median employee.
The gray dots represent companies reporting pay ratios between 25:1 and 35:1.
Dots that fall above and to the left of the gray dots represent companies at which CEOs are paid at comparatively higher multiples than their median employee.
The purple dots represent the top quartile of companies, reporting CEO pay that is at least 71 times higher than their median employee's.
The pay for Mylan CEO Heather Bresch, for example, was $18.5 million, nearly 430 times that of the drugmaker's median employee.
At other companies, the gap between CEO and employee pay is much smaller. Dots that fall below and to the right of the gray dots represent companies at which CEOs are paid closer to what their median employee makes (although CEOs still make many times more).
The purple dots represent the lowest quartile of companies by pay ratio.
Last year, Sarepta CEO Douglas Ingram's pay was five times the pay of the rare disease drugmaker's median employee.
Pay ratios can change quickly, however: In 2017, $45 million in stock option awards granted to Ingram had boosted Sarepta's ratio to 225:1.
Larger companies tend to have wider gaps between what they pay their CEOs and employees.
At smaller biotechs, with fewer workers, median employee pay can be quite high, resulting in much smaller ratios than are common in other industries.
Higher employee pay among biotech companies means CEO compensation in the industry is comparatively less stark. (The CEO of Starbucks, to use one notable example, made 1,675 times what the median barista earned last year.)
Roy Saliba, head of product and compensation business at ISS Corporate Solutions, said companies will compare their ratio against their peers or track them over time, but rarely do they make decisions off the ratio alone.
"It's hard to compare across companies," Saliba said. "Even when they're comparable, what's the conclusion? The conversations have shifted more to pay equity, racial and gender equity."
While those issues may be drawing more attention than before, the company leaders working to address them in the drug industry remain mostly white and male. Just 21 of the 231 companies analyzed by BioPharma Dive were led by a woman in 2019 — a situation little changed from previous years despite ambitious goals set by industry trade group BIO.
On an average basis, compensation among the 21 female CEOs is actually higher than in the broader group due to the outlier pay packages for United's Rothblatt and UroGen's Barrett. Measured at the median, female CEO compensation last year was 8% lower, although the comparison is limited by the imbalance in group size.
Female CEOs are few and far between in biotech and pharma
When biotech and pharmaceutical CEOs have been scrutinized for their pay packages, it's often been tied to questions of whether drug price increases play a role.
Early last year, for example, Democratic Senator Ron Wyden of Oregon grilled AbbVie CEO Richard Gonzalez on whether the executive would make more money if the company raised the price of its topseller, the anti-inflammatory medicine Humira.
Sales of the drug had previously factored in AbbVie's calculations for determining short-term bonuses for its executives, including Gonzalez. For 2019, the company removed explicit mention of the drug from its methodology.
Direct references to individual drugs in executives' performance targets is relatively rare. A few others besides AbbVie, such as Incyte and Seattle Genetics, have benchmarked pay against specific product sales. Most, though, use broader financial metrics that make the relationship between higher revenue from one drug, and higher incentive pay, less direct.
For the past three years, the Interfaith Center for Corporate Responsibility has pressed a handful of the top drugmakers on this issue. A coalition of some 300 advocacy groups and investors, ICCR views drugmaker reliance on increasing prices as a major risk to the companies' sustainable long-term growth.
Through shareholder proposals by its members, ICCR has sought greater disclosure around drug prices and whether executives benefit financially when prices rise.
This year, Johnson & Johnson and Biogen both noted in proxy statements that their directors would consider how executive incentives might influence decisions on drug pricing. Each had previously recommended against ICCR-supported proposals asking for a detailed report on the issue.
"This isn't necessarily targeting one company in particular, but it is an industry problem," said Meg Jones-Monteiro, a program director at ICCR.
More companies, she said, are now setting expectations that growth will come from higher volumes of their drugs being prescribed, rather than from higher prices. The changes made by J&J, Biogen and AbbVie, meanwhile, suggest some acknowledgement of the role incentives might play in encouraging aggressive pricing.
Whether or not drugmakers adjust their approach, the trend to higher CEO pay seems likely to continue. Strong biotech stock performance should help earn executives sizable pay packages in 2021, and will lift the value of stock awards.
More simply, the ways by which companies benchmark compensation can encourage ever higher pay.
"Companies target the median of their peers," said Saliba of ISS Corporate Solutions. "But everyone is targeting it, so the median invariably moves up and up."
For this story, BioPharma Dive created a representative industry group of 231 publicly traded biotechnology and pharmaceutical companies.
We first merged the list of companies included in the SPDR S&P Biotech exchange traded fund with a similar list for the iShares Nasdaq Biotechnology Index. To that combined group, we then added in a dozen large, multinational pharmaceutical companies. Since we were most interested in drugmakers, we removed two dozen companies involved primarily in genetic sequencing or diagnostics, as well as contract research organizations.
Using proxy statements, we retrieved the numbers reported by the companies for executive compensation and median employee pay in 2017, 2018 and 2019. Six companies did not directly report CEO pay in the documents they filed for 2019, while 107 did not report compensation for their median employee.
From the resulting dataset, we calculated the median and average pay for CEOs and median employees for each of the included years, and quartile ranges for 2019. Because companies included in the data analysis have widely different sized workforces, taking a median estimate of a group of median employees can only be a rough estimate of what median pay in the industry might be.
In some cases, reported CEO pay ratios were rounded to the nearest whole number.
Employee numbers were retrieved from the latest relevant regulatory disclosure available, usually a Form 10-K.
For further analysis, we segmented the 231 companies into four groups by number of employees: small (fewer than 200), mid-sized (200 to 999), large (1,000 to 9,999) and greater than 10,000 (giant).
A public version of the database BioPharma Dive created can be viewed at this link.