Is CEO pay linked to drug prices? Curious investors failed their campaign to find out

Pile of money
Several pharma CEOs pulled in $20 million or more last year, leading investors to question whether their pay is tied to rising drug prices. (Getty/urfinguss)

Some Big Pharma investors wanted to know whether drug prices are rising because executives personally benefit from the hikes. But when they put that question up for a vote, their fellow shareholders turned them away.

In a series of annual meetings at top drugmakers, shareholders rejected calls for more information on executive compensation—namely, whether price hikes directly fueled increases in C-suite pay.

Faith-based investor group ICCR had submitted proposals to AbbVie, Celgene, Johnson & Johnson, Merck & Co., Pfizer and Vertex requesting information about how price hikes feed sales goals and other exec pay metrics. It was the second straight year ICCR had done so—and again, the larger group of shareholders rejected the idea. 

AbbVie, J&J, Pfizer and Merck shareholders turned away the proposals, an ICCR representative said via email; support ranged from 22% to 29%. Vertex shareholders are set to vote on the proposal June 5.

The shareholder resolutions asked drugmakers whether they use price hikes to meet sales goals, whether boards must approve price hikes, and how compensation committees use revenue goals to determine incentive pay. 

ICCR has said that the companies’ routine price hikes pose long-term regulatory and reputational risks, and the group has posed the question as to whether incentive pay goals actually encourage executives to raise prices. 

Conference

The 13th Annual Digital Pharma East

Digital Pharma East returns to the Pennsylvania Convention Center September 17–20, bringing together over 1000 attendees from biotech and pharma, to better understand how to present business plans, justify budget and innovation, and de-risk proposals getting shut down — essentially, understand how they can return to the office and become champions for their internal digital needs. Join us and save 15% on standard rates when you register with Discount Code DPE19Fierce.

In 2018, AbbVie paid its CEO Richard Gonzalez $21 million, while Celgene’s CEO Mark Alles made $16.2 million. Pfizer’s former CEO Ian Read pulled in $19.5 million in compensation; J&J’s Alex Gorsky scored $20 million; and Merck’s Ken Frazier earned $20.9 million. Vertex CEO Jeffrey Leiden snagged a pay raise to $18.8 million.

Last year, the proposals won between 21% and 28% of shareholder support.

RELATED: AbbVie hands CEO $21M—and a hefty bonus—even as executive pay scrutiny mounts 

Ahead of the vote, a Pfizer spokeswoman said the company "does not believe this proposal is in the best interests of the company or shareholders." 

"The executive compensation program is aligned with both short-term performance and long-term performance and shareholder value measures that encourage thoughtful pricing actions," she said last month. 

ICCR’s member groups started the campaign in response to a Credit Suisse report that concluded many pharma companies derived all of their earnings growth in 2016 from price hikes. 

Editor's note: This story was updated to reflect that Vertex shareholders haven't voted on the proposal. The company's annual meeting is June 5.

Suggested Articles

Several Johnson & Johnson drugs are contributing strong growth, but some struggling medicines weighed on the company's overall performance.

J&J has received its fair share of barbs Oklahoma's bench trial. Whether it'll be held responsible for the state's opioid crisis is now up…

J&J's pharma unit is still on the upswing, thanks to newer meds like Stelara, but execs had to explain disappointing numbers from two blockbusters.