With heat building in the corporate world over what are seen by many as excessive compensation packages for executives, Genzyme Corp. is moving toward stricter requirements.
The company has adopted new incentive compensation plans for its senior executives based on a broader set of performance measures beyond corporate income. Under the annual incentive plan that starts this year, bonuses will be awarded based on corporate and individual performance. The prior incentive plan used just one measure for corporate performance - operating income, Cambridge, Mass.-based Genzyme said.
Now, corporate financial performance will be measured by revenue and cash-flow return on invested capital. Key business objectives also will have to be met in the areas of organization renewal, pipeline advancements and the recovery of the Genzyme's personalized genetic health business, the company said.
Kara Coluccio Bern, a consultant in the New York offices of executive search firm Russell Reynolds Associates, said that Genzyme's new approach to executive compensation is "not one we've seen before. But I don't think it's surprising."
As the industry becomes more conscious of economic constraints, companies have increasingly sought well-rounded executives who can do more with fewer resources, even in areas like research and development that traditionally are less focused on the bottom line, Coluccio Bern explained.
That represents a fundamental shift, she said, that "undoubtedly will affect the culture of the industry over time."
Genzyme's new incentive compensation program for senior executives is the result of a review process first announced last spring. John Lacey, associate director of communications at Genzyme, told BioWorld Today that the new incentive compensation plans and some recent hires are part of the company's effort to ensure continued growth and fits with the company's business excellence initiative.
"The compensation committee and board have been actively engaged on executive compensation for some time," Lacey said, noting that they have met on several occasions over the last few years to hear from academic experts, consultants and shareholders. "The adoption of this plan now is to ensure that the proper incentives are in place as the company grows."
The new compensation plan comes as Genzyme goes through some significant personnel changes. Robert Bertolini, the former executive vice president and chief financial officer at Schering-Plough, has been added to Genzyme's board, and Ron Branning, formerly with Gilead Sciences Inc. and Genentech Inc., was hired to head global quality at Genzyme.
Deutsche Bank analyst Mark Schoenebaum counted at least six key personnel changes at Genzyme in a general company update that he issued Jan. 11. "Most members of the board have an operational/scientific or regulatory background, and the recent appointment of Bob Bertolini was a step toward adding finance/accounting expertise," Schoenebaum wrote.
Genzyme's new corporate performance metrics will determine 80 percent of any award under the plan, and individual performance will determine 20 percent for senior executives, the company said.
About half of the award will consist of a stock and cash grant vesting after three years, but only if the company meets pre-approved financial metrics.
For the 2010-2012 performance period, the performance measures are relative total shareholder return measured against the performance of 28 companies in the S&P 500 Health Care index, and cash-flow return on invested capital.
The remaining half of the award under the new long-term incentive plan will be comprised of stock options. The previous long-term incentive plan included equity grants that were solely time-vesting and did not include performance metrics. In addition, divisional operating income will be used to measure the performance of leaders of the company's business units.
"The plans provide shareholders with more transparency into executive compensation decisions, and will encourage senior executives to make decisions that drive growth and shareholder value," Genzyme board member and Compensation Committee chairman Charles Cooney said in a statement.
Genzyme reported fourth-quarter revenues of $1.08 billion, in line with analyst estimates thanks to osteoarthritis knee pain drug Synvisc-One (hylan G-F 20) and oncology drug Mozobil (plerixafor injection), both launched in 2009. Full-year revenues of $4.5 billion also were in line with estimates, but represented a drop from 2008 revenues of $4.6 billion. (See BioWorld Today, Jan. 13, 2010.)
Of the 203 biotech CEOs surveyed in the BioWorld Executive Compensation Report 2010, Genzyme CEO Henri Termeer ranked third for his annual cash compensation of $3.54 million (including salary and bonus), behind Biogen Idec Inc. CEO James Mullen's haul of $3.59 million.
Kevin Sharer, CEO of Amgen Inc., continues to be the top-paid biotech chief in terms of overall cash compensation, according to the BioWorld survey. Arthur Levinson at Genentech Inc. topped the list last year, but Genentech has since been acquired by Roche Holdings AG for $45 billion.
Median salary for the surveyed CEOs, according to the BioWorld report, increased to $445,466 for 2008 from $431,000 the previous year, while median bonuses slipped from $166,000 to $120,938. Total median CEO compensation - salary, bonus, equity and other incentives - fell to $1.03 million in 2008 from $1.18 million the prior year.
Shares in Genzyme (NASDAQ: GENZ) were down 8 cents Thursday, closing at $54.12.