Ceo Compensation in the Pharmaceutical Industry Essay

1308 Words Apr 3rd, 2014 6 Pages
Incentive programs are ubiquitous in corporations, but there are serious flaws in how they have been implemented, particularly for executives. In this paper, we are going to discuss the incentives of four different CEO from Pharmaceutical Industry. Pfizer Merck & Co Bristol-Myers Squibb Vertex
2012 Revenue $59B $47B $21B $1.5B
2011 Revenue $65B $48B $19B $1.0B
CEO Read Frazier Andreotti Leiden
Base $1.75M $1.5M $1.6M $1.0M
Annual Incentive $3.4M $2.5M $3.8M $2.1M
Annual LT Incentive (Stock and Stock Options) $12.9M $7.1M $10.9M $2.5M
Perks/Other $175k $0.06M $808k $0.01M
Vested/Exercised Shares $5.6M
Approx. Total $25M $11.1M $17.2M $5.7M

According to the Proxy statements, both Pfizer and Mereck have approximately 90% of
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In another area of the statement it is contrarily mentioned that individual performance was a primary determinate of incentive compensation. Though Andreotti is said to have performed well during a critical buy-out after a patent expiration in 2012, the performance compensations do not seem to be well aligned with short term or long-term company performance. Continual distribution of such grandiose compensation will definitely cause a misalignment of CEO incentives. Finally, Vertex was the smallest of the pharmaceutical companies we analyzed. Being a much smaller-scale organization, Vertex’s second-year CEO has a justifiably lower base salary than the previously mentioned individuals. Vertex does mention that part of its compensation plan is to attract experienced and motivated talent, and therefore offers a highly incentivized program to encourage the growth of the company. Though Leiden did receive annual cash and long-term incentives for 2012, they were very modest compared to the previous three companies and were drastically less (over 50%) than the previous year. This was accredited to the underperformance of meeting only 90% of company goals for 2012. Overall, Vertex seems to have a balanced compensation strategy that is appealing enough to attract key personnel that can help grow the company, while also aligning compensation payment with overall performance.

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