Hey, CEO Pay Can Be Rational: Just Look at Gilead Sciences
If there's a model for what pharmaceutical company CEO compensation ought to look like, you could do worse than Gilead Sciences' John C. Martin. Last year, he got a pay raise of 17 percent, up to about $14.7 million. In fact, he did much worse than Gilead (GILD) itself; net income at the HIV drug specialist rose 33 percent to $2.6 billion on revenue growth of 31 percent to $7 billion.
Plus, he gets no perks. No private jet (like Pfizer's Jeff Kindler). No helicopter (like Merck's Dick Clark). No free trips to Asia for his wife (like Genzyme's Henri Termeer). No tax-free vacations (like Mylan's Robert Coury). No car and driver (like Wyeth's Bernard Poussot).
As if that weren't enough, he also doesn't get any severance if he's fired or let go, in part because he has no contract: Martin is actually an "at-will" employee, meaning he has the same rights -- or lack thereof -- as the janitors who vacuum his office.
Nor does he get severance if the board decides to replace him, beyond the equivalent of what regular employees get when they're laid off. In fact, in the perks column of Gilead's disclosure regarding his compensation, it lists only $5,300 -- and that turns out to be a 401(k) contribution.
Bottom line: Martin receives the usual salary, stock, options, and bonuses if he hits them. He's not poor by any means. But unlike the Louis XIV-style accoutrements enjoyed by his colleagues, he can be replaced with at little cost to the company. Also unlike many of his peers, his performance is roughly correlated to how well his company has done. (In fact by some measures Gilead does far better at generating revenues than everyone else.) Other companies should take note.
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