Gilead Sciences CEO John Milligan was already set to collect a smaller pay package than his predecessor John Martin did. After all, Martin did hold down that job for more than 20 years.
But it turns out Milligan’s compensation shrank more than the company might have expected at the beginning of last year. The reason? Gilead’s dwindling hepatitis C revenue—and the fallout for its share price.
According to the company’s latest proxy statement, Milligan’s total 2016 compensation amounted to $13.93 million, compared with Martin’s $15.93 million in 2015, his last year as chief executive. Milligan’s total included a 25% raise in base salary when he moved to the CEO chair, to $1.46 million from $1.18 million. So far, so good.
His 2016 stock awards—shares that vest according to performance against particular goals—were valued at $4.35 million as of the grant date. Options valued at the same time were worth $5.5 million, the proxy states. Cash incentive pay came in at $2.61 million.
The last number is revealing, according to the company’s compensation committee report in its public filing. Milligan’s bonus was 23% lower than Martin’s the previous year, specifically because of faltering shareholder returns.
“This year-over-year reduction was driven in large part by our failure to meet specific financial goals, which accounted for 30% of our corporate bonus award determination,” the filing states.
But the bigger blow to Milligan’s 2016 pay lies in the options column. Valued at $5.5 million on January 1, 2016, the day they were granted, by December 31, they were worthless. Or as the proxy states, “2016 stock options currently have no value.”
Of course, one could say the same of options granted the CEO at any company that suffered a major decline afterward, and with executive pay under scrutiny by investors and the public, it’s to Gilead’s benefit to emphasize that its executives suffer along with shareholders.
And shareholders have been suffering—at least comparatively so—as Gilead’s hep C sales took a nosedive. The stock ended 2016 at $71.61, down more than 26% from $98.01 as the year began. As of February, when Gilead reported its 2016 earnings, its shares had lost about 40% of their value over the previous 18 months.
Investors have been pressuring Milligan to make some kind of transformative deal or series of deals to turn the company’s fortunes around. During Gilead’s earnings call, Milligan acknowledged that it would be tough to grow the company, given the hep C dynamics and near-term patent expirations, “without some sort of acquisition.”