Riled by AZ CEO's $12M package, investors push pay overhaul

AstraZeneca CEO Pascal Soriot

For the second year in a row, some restive AstraZeneca ($AZN) shareholders are pressing the company to tie CEO Pascal Soriot's pay more directly to the aggressive sales goals he used to dodge Pfizer's ($PFE) 2014 takeover bid.

As The Sunday Times reports, some investors are upset that the company's board hasn't done much to link Soriot's compensation to those goals, which were $45 billion in yearly revenue in 2023. They say they'll vote against his pay structure at next month's annual meeting, the Times reports, citing unnamed sources.

Two years ago, amid vociferous opposition to Pfizer's buyout offer, Soriot laid out his case for AstraZeneca's independence. Among the stats he quoted was that $45 billion sales target for 2023, and the optimistic outlook helped keep shareholders steadfast long enough to inspire Pfizer to withdraw.

But shareholders also knew that the $45 billion was more than a stretch goal--it was a major leap from AstraZeneca's current fortunes, and at a time when the company would be facing the loss of patent protection on its blockbuster statin med Crestor, among other challenges. So, when the time came to tweak Soriot's compensation structure last year, some investors urged the company to put his pay on the line, tying it to progress toward that long-term goal.

AstraZeneca's compensation committee had rejigged Soriot's incentive pay somewhat by changing performance measurements and shifting the percentages of various payouts dependent on those measurements. The board said the changes were designed to emphasize long-term progress as well as short-term achievements, but acknowledged that they didn't go so far as to include the company's advance toward $45 billion specifically.

This year, the idea has resurfaced, partly because Soriot's 2015 pay--calculated according to rules set by securities regulators--more than doubled to £8.4 billion, or about $12 million. About half of that came from securities that vested based on his performance against a 2013 share grant.

Other recent news played a role, too, the Times says: Investors are still smarting from last month's profit warning, based on generic competition to Crestor, which had already declined slightly to $5 billion last year. AstraZeneca said revenue and earnings will both decline by a low- to mid-single-digit percentage, including dilution from two buyouts, Acerta and ZS Pharma.

Investors have also taken aim at AstraZeneca's series of product sell-offs, which have generated up-front cash, boosting current revenue and profits--but, they say, at the expense of long-term cash flow.

"We are disappointed the committee ultimately decided not to tie executive pay to the revenue target announced during the Pfizer bid," said one big investor, Ashley Hamilton Claxton of Royal London Asset Management, which owns £492 million in Astra Zeneca shares (as quoted by the Times).

The company acknowledges that "some shareholders … would like to see a direct link between executive pay and the 2023 revenue target," the Times notes. But AstraZeneca also says, "[T]hat is not necessarily the view of the majority."

Still, the board committee says it's open to some changes that would make "a more transparent link" between executives' long-term incentive pay and the 2023 target, the company told Reuters on Monday. "They will continue to consult with major shareholders" on proposals to simplify incentive pay, the company said.

- get the Times news
- read the Reuters follow-up

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