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Life Sciences CEO Compensation Study Summary For the seventh consecutive year, Ernst & Young has teamed up with J. Robert Scott, WilmerHale, and the Harvard Business School to examine compensation trends in the life science industry. The survey gathered data from over 1,000 executives at more than 189 private biopharmaceutical, therapeutic, bioinformatic, genomic and molecular technology, and medical device/diagnostic companies. The survey data was collected from April to June of 2008 and produced the largest report to date. The 2008 survey data would give any reader an optimistic view of the economy as compensation saw general increases across the board, although the increases for all categories were not as pronounced as in 2007. In light of what is going on in the U.S. economy, I thought it would be helpful to know how CEOs in particular are compensated in the life sciences industry. Below I have summarized the information regarding CEOs compensation breakdown – base, bonus and equity. It is important to know that the report presents the correlation between executive compensation and a number of variables including financing stage, company size (both in terms of product stage and head count), founder/non-founder, industry segment and geography. 2008 CEO Cash Compensation (base salary and bonus) By Business Segment:
The studies show that life sciences CEOs typically earn more than their tech counterparts, with average 2008 base salaries of $300,000 for top life sciences executives, up 6.7 percent from $281,000 in 2007, and $236,000 for the tech chief executives, a 4.2-percent increase from $227,000 last year. In regards to geographic location, New England life sciences CEOs, with average total cash compensation (base salary and bonus) of $422,000, are the highest paid chief executives in the country. 2008 CEO Cash Compensation (base salary and bonus) by Geography:
This year, bonuses were one of the highlights in both the life sciences and IT reports with a trend toward “pay for performance,” with a higher percentage of employees across the board in both segments eligible for bonuses in 2008 compared to 2007. The study showed that tech CEOs had an increase in target bonuses from $98,000 in 2007 to $102,000 in 2008, and these executives received an average of 71 percent of their bonuses last year. The same can not be said for life sciences CEOs, whose average target bonuses were down from $96,000 last year to $92,000 in 2008, and the average bonus attainment rate was 69 percent in 2007 In this industry especially, equity is a driving component, but it appears to be harder to come by nowadays for tech CEOs. Non-founder tech chiefs had average equity of 5.46 percent in 2008, down from 5.7 percent last year. Even founding CEOs in tech saw their stakes dwindle this year, from an average of 24.79 percent in 2007 to 22.05 percent this year. The average equity of non-founder life sciences executives was up from 5.48 percent last year to 5.59 percent in 2008. In this category, the founding life sciences CEOs showed the largest increase, whose average equity rose from 13.37 percent last year to 17.12 percent in 2008. Regarding geographic location, equity holdings were highest among Mid-Atlantic and South CEOs at 7.10% and 7.27%, respectively. Overall venture capital investment fell when compared to 2007, according to third-quarter industry reports for 2008. However, investments in industries such as life sciences and clean technology rose. Yet, despite this positive information, early-stage life science companies—and in particular privately held ones—will not be immune from the market forces at play. Although it has been said that quality companies will continue to attract funding, the recent market activity predicts increased pressure on both investors and executive teams to manage costs. One way they will do that is undoubtedly through compensation. The data-gathering process for the most recent survey certainly reinforced a competitive environment for recruiting in 2008. The recent economic downturn paints a different picture for 2009. For better or for worse, as companies across all industries scale back or monitor expansion, we will certainly see a rise in the supply of talent, which most search committees will view as a positive.
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