High pay in the UK hit new heights last month when AstraZeneca’s (AZN) new policy was voted through by shareholders. This increased the package of its chief executive, Pascal Soriot, to a potential £18.9mn, much against the advice of proxy advisers.
Michel Demaré, who chairs AstraZeneca, claims that the proxies operate double standards. They advise shareholders to vote against high pay in the UK, but support even higher pay in US and Swiss businesses. This is because proxies follow the conventional wisdom of applying local rates: they compare AstraZeneca’s pay with other FTSE 100 companies. This, Demaré maintains, is inappropriate. Except for GSK (GSK), other FTSE 100 constituents operate very different businesses, and in terms of size, only Shell (SHEL) has a market cap as large.
In the annual report, Sheri McCoy, who chairs the remuneration committee, says that “our employees are rightly viewed as market-leading talent”, by which she means their capability and experience make them ripe for poaching. McCoy says that “40 per cent of our senior leaders are based in the US and over 40 per cent of our revenue derives from the US” and when the group recruits, it needs to “compete for the best talent in the US market”. Paying at market rates, then, is critical for both retention and recruitment, but how likely are UK people to move abroad? Demaré says that “our [top people] are based everywhere and are mobile worldwide”.
McCoy was concerned about “pay compression” in certain areas, and notes that the heads of research and development (R&D) are “the most highly compensated roles in the industry below CEO level”. R&D was a problem when Soriot took over in March 2013. Only 4 per cent of AstraZeneca’s drugs had completed phase III trials between 2005 and 2010, which left the pipeline to replace expiring patents somewhat empty. Soriot employed a strategy focused on viable candidate drugs with a likely commercial payback.
There were inevitable failures and impairments, but the pipeline grew, especially in oncology (the treatment of cancers). During his tenure, AstraZeneca has beaten off a bid from Pfizer, partnered with Oxford University to mass produce the world’s first Covid-19 vaccine, and acquired Alexion, a US specialist in rare disease ‘orphan’ drugs, for $39bn (£31.2bn). All these were controversial decisions that involved a high degree of risk, and not easy ones to make. One insider summarised Soriot as “one of the better I have met. He has driven cultural change, hired and promoted excellent scientists who have done some sterling development work, and done the right type of deals to bolster the pipeline and prospects. I don’t doubt that he is demanding, but he has delivered.”
That delivery is reflected in his pay, which Demaré argues is geared more to performance than in non-UK companies. Scientific, financial and sustainability measures are used to assess this, together with total shareholder return, and Soriot has consistently received 85 per cent or more of his maximum annual bonus and share awards. The 2021 pay policy lifted his long-term share award to 6.5 times his salary “to close the gap to market pay levels within the competitive global and European pharmaceutical talent pool”. Last month, this share award was raised again, to 8.5 times his salary – and so, too, was his maximum annual bonus, from 2.5 times salary to three times. According to the group, this positions Soriot’s potential pay between the lower quartile and median of the group’s global peers, although pay in the peers might be understated. Demaré says that “foreign companies typically use restrictive valuations of deferred compensation that lead to lower disclosed remuneration than if calculated using UK rules”.
But does high pay really influence performance? It might demonstrate how much the directors appreciate the executive, but at this level, executives tend to be motivated not by money, but by the challenges of the role. Over the past five years alone, Soriot has received £79mn, mostly in shares and, of course, subject to tax. At the end of 2023, he owned outright AstraZeneca shares worth about £43mn (at a share price of £120). Having so much skin in the game shows Soriot’s commitment to continue making AstraZeneca a success. But he also has a similar amount subject to his performance and continued service – this dwarfs high pay as a retention mechanism.
Even so, with such accrued wealth in his company’s shares, it’s hard to avoid concluding that Soriot is able to choose his own destiny. Whenever he decides to leave, why should high pay hold him back, however much that happens to be?
