Option Cuts Trim Life Sciences Pay Packages

January 18, 2005 (PLANSPONSOR.com) - Executives in the Life Sciences industry saw a significant drop in the value of their total compensation packages last year, with a much reduced level of stock option grants, according to a new study.

The study, released by San Francisco-based Presidio Pay Advisors, Inc., found that while base salary and annual bonus levels declined just 9%, the value of long-term incentives, such as stock options, took the biggest hit, dropping 48% in just one year. Significantly lower stock option grant levels and decreasing stock prices are responsible for the decline, according to Presidio Pay.

The study also found that:

  • Just 13% of the 373 executives in the study received a restricted stock grant during 2004, down from 30% the prior year. Presidio observed that this was a surprisingly low reading, given the renewed interest in restricted stock as companies react to stock option expensing.

  • Company-wide option grants have been decreasing for the past few years due to lower competitive grant levels. The annual net run-rate was 2.3% of total shares outstanding, down from the previous year and below the three-year average, according to Presidio.

  • At the median, roughly 8% of total shares outstanding are subject to senior management or outside director ownership.

  • Median chief executive officer total direct compensation was over $1.6 million, including the present value of long-term incentives granted in the most recently reported fiscal year.

The median level of overhang for all companies in the study is 19% of total shares outstanding (overhang being defined as the number of shares subject to outstanding stock options, plus shares available for future grant under the company’s equity incentive plans, divided by the total company shares outstanding). Roughly three-quarters of the median overhang figure, or 14.7%, is comprised of existing options outstanding, with one-quarter of the overhang figure, or 4.1%, comprised of shares available for future grant.

The recently released Presidio Pay Advisors – Life Sciences Industry Compensation Study presents findings on executive pay levels, equity compensation practices, and Board of Director compensation at 76 life sciences companies. The survey is online at http://www.presidiopay.com/Publications/LifeSciencesStudyReport.pdf