BioWorld International Correspondent

LONDON - European biotechnology companies that have used stock options to lure CEOs from big pharma now risk losing them because the value of the shares has fallen so dramatically, according to a survey of 29 CEOs carried out by a leading recruitment firm.

"For the right role, a lot of biotech CEOs would go back to pharma," Laurence Monnery, of the recruitment consultants Egon Zehnder International (EZI), told BioWorld International. "The good news for biotech right now is that pharma is not recruiting a great deal, so it's not a hemorrhage."

For the survey, EZI carried out face-to-face interviews with the CEOs, who came from companies across Europe with market capitalizations ranging from €1.5 million to €352 million.

The average amount of stock granted to the CEOs was 3.5 percent. At the time of the survey in the third quarter of 2002, the stock had an average value of €1.52 million.

Not only are share options under water, other incentives such as cash bonuses are unlikely to be activated in the current market. "At the moment you could be doing a great job but it won't affect the share price," Monnery said. The underlying question is whether a bonus should be triggered only by results achieved, or in proportion to effort.

The biotech CEOs surveyed also admitted to feeling their job security is poor, resulting in stress. "It is really hard at the moment, because the environment is very risky and [CEOs] are not getting paid any more than guys in big pharma," Monnery said.

"They are stressed. It was fun for a while, but we are now 18 months into the decline and there is no sign of things improving."

Monnery added, "Some of the very small companies have in the past attracted big guys from pharma on huge salary cuts. I can't see that happening now."

EZI was prompted to do the survey because it says there is currently very little data available on the compensation of European biotech CEOs. The situation is the same in the U.S. when it comes to private companies.

This was reflected in the salary negotiation process of the CEOs in the survey. In 68 percent of cases remuneration was agreed to on the basis of the package CEOs enjoyed in their previous position. In only 20 percent of cases were industry data and benchmarking used as the basis of the negotiation.

The lack of benchmarks was reflected in the huge range of salaries among those surveyed - from €30,000 to €610,000 - with an average salary of €225,000. In terms of the total package, the average was €295,000 and the range was €30,000 to €915,000.

Monnery said it was surprising to find there was no correlation between the number of employees and the salary of the CEO, and was also surprised that fewer than half of CEOs have a health or pension plan. And even though a large number work outside their country of origin, they are seldom given aid for housing or schooling.

Biotech companies will need to adopt a more sophisticated approach to the total package if they want to retain their CEOs, Monnery said. "Share options have been seen as the key, but there is little value in them now."