Why was Roche CEO Severin Schwan’s 2019 compensation slightly down while many of his European biopharma peers got big raises?
The answer isn’t related to performance, at least not according to Roche’s annual report (PDF). Rather it’s due to changes the company made in how it awards performance-based shares—revisions that tie Schwan's compensation more to long-term growth than to short-term stock performance.
Schwan’s base salary of 4 million CHF ($4.3 million) didn’t change, but his performance share plan (PSP) award dropped from 1.49 million CHF to nothing. That’s because the board’s remuneration committee decided to stop awarding new PSPs to members of the board and the corporate executive committee at the end of 2018. Thus Schwan’s total compensation dropped about 2% to CHF 11.5 million ($12.2 million).
Roche’s PSP plan was put in place in 2002 and each award was made on a three-year basis. PSP awards were calculated based on a comparison of Roche’s total shareholder return with that of 15 peers, according to the annual report. The final three-year cycle will complete at the end of this year, at which point the remuneration committee will determine the payments “using complete discretion,” the annual report says.
Still, Schwan’s compensation sure looks flat compared to that of his peers. AstraZeneca CEO Pascal Soriot saw his compensation soar 26% to £14.3 million ($18.54 million). Several of the company’s products saw impressive growth, including cancer drugs Tagrisso and Lynparza, though they did miss Wall Street’s sky-high sales expectations in the fourth quarter.
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Novartis CEO Vas Narasimhan also got a huge boost that brought his pay in line with Schwan’s. Novartis raised the value of Narasimhan’s pay package by 59% to CHF 10.62 million ($11.37 million). The raise included a cash bonus and long-term equity awards that paid off thanks to the company’s performance between 2017 and 2019.
Meanwhile, GlaxoSmithKline CEO Emma Walmsley saw her pay bumped by £2.5 million to £8.37 million ($10.81 million), which also brings her pay almost in line with Schwan’s. Walmsley has overseen an innovation-focused overhaul, a consumer joint venture with Pfizer and the integration of Tesaro, which GSK bought for $5.1 billion in 2018.
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Schwan will be facing plenty of challenges as he steers Roche through 2020. Biosimilar rivals to the company’s cancer blockbusters Rituxan and Herceptin continue to eat into European sales, shaving a total of $1.5 billion off the top line in 2019. The company’s new multiple sclerosis drug Ocrevus and hemophilia A treatment Hemlibra are taking off—their combined sales doubled last year to CHF 5.09 billion ($5.24 billion)—but some analysts are fretting over looming competition.
Then there’s Roche’s flu business. Sales of Tamiflu were flat in 2019, while Xofluza, which Roche licensed from Shionogi, plummeted 29% to CHF 10 million ($10.6 million). A spokesperson for Roche told FiercePharma at the time that “current U.S. demand for Xofluza is aligned to expectations and is following a positive trend.”
Roche’s expectation that Schwan will figure out how to guide the company’s newer products into blockbuster territory is evident in his pay package. He did get a bonus worth CHF 2.8 million ($3 million)—unchanged since the previous year—but those are shares that are blocked for 10 years. Everyone else on the executive committee got cash bonuses.