AstraZeneca has made some headway with investors persistently provoked by its executive pay—but not much.
On Friday, 35% of the British drugmaker’s shareholders gave a thumbs down to its 2017 compensation, a few percentage points lower than last year’s vote, a say-on-pay poll rather than a binding vote. Progress, but hardly a ringing endorsement of the changes AZ says it has made at investors’ request.
AstraZeneca has faced compensation complaints for years now, ever since CEO Pascal Soriot’s arrival came with a signing bonus designed to take the place of payouts he expected from his previous employer, Roche.
Angry—and vocal—shareholders complained, and the say-on-pay vote last year came in at 40% on the negative side. For the two years after that, AZ reps heard out investors looking to tie Soriot’s pay more closely to the financial targets he set back when he was scrambling to avoid a hostile takeover by Pfizer, namely the £45-billion-by-2023 revenue target he quoted to investors at the time.
It’s not as if those changes haven’t had any effect on Soriot’s take. He took a hefty cut in 2017, for instance, when his pay dropped to £9.4 million (about $12.7 million), a 34% decline. That’s after a 68% hike in 2016, when his compensation package came in at £13.4 million.
“We have made changes to our Remuneration Report in response to feedback, including introducing a simplified bonus structure and enhanced disclosure,” an AZ spokesman told FiercePharma early this month. He added that, in the binding vote, the company’s pay policy was supported by 96% of shareholders last year.
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The 2017 shrinkage wasn’t enough for the proxy advisers at Institutional Shareholder Services (ISS), however, which argued that Soriot’s 2017 bonus was still too high. He collected 87% of his maximum target—a calculation that yielded £1.9 million—at a time when the company’s own profits are slumping.
If Soriot’s managing to hit his goals under such circumstances, then his goals aren’t cutting it, ISS said in an emailed statement to FiercePharma. “This does indicate the need for the remuneration committee to set more stretching targets within the bonus framework,” the statement said.
Plus, financial targets only account for 40% of AstraZeneca’s bonus criteria, ISS noted. Focusing on long-term strategy may be important, but at some point, strategy has to pay off. “[S]trategic inputs by the management team need to start translating into financial performance and as such the lack of focus on financial outcomes is a cause of concern,” ISS wrote.
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Obviously, more than a third of AZ shareholders either listened to ISS’ recommendation of a No vote or had come to the same conclusion themselves. The company said it’s “disappointed” in the vote, and it will continue working with those unhappy investors.
"The remuneration committee has already engaged with a number of shareholders to understand the reasoning behind their decisions not to support the remuneration report and will continue to engage with shareholders during 2018 to determine how best to address their concerns,” AZ said in a statement.
The vote followed a first-quarter earnings report that disappointed investors. Crestor, its blockbuster statin now facing generic competition, took a big dive, dragging down sales. Revenue fell by 2% overall, and profits dropped, too. AZ shares, however, gained 27% in 2017, fueled by expectations for its immuno-oncology combo and its performance in a key lung cancer trial, Mystic. Those numbers didn’t prove out on a progression-free survival analysis last fall, leaving investors waiting for overall survival data expected later this year.