Most company annual meetings are long-winded, boring, and generally useless exercises. But they offer one grudging nod to democratic capitalism: a microphone in the audience for any stockholder, big or small, to give top executives a piece of his or her mind.
Vertex Pharmaceuticals Inc. will hold its meeting Thursday at the company’s Boston headquarters. I don’t know what anyone might ask or tell chief executive Jeffrey Leiden, but here’s what I would say if I had that microphone:
Good morning, Jeff. Vertex did a lot of very good work last year, paving the way for a new treatment to help thousands of cystic fibrosis patients who don’t have any other good options. And I’m thrilled our stock is up more than 75 percent over the past year.
But I’m worried about the huge prices that drug companies are charging for treatments that help patients with relatively rare diseases, and what happens with all that money. In particular, I would like to talk about the big executive bonuses Vertex handed out last year — in advance of our new drug launch expected next month.
About the $53 million in “retention” bonuses — including nearly $15 million for you, Jeff — I hear the company did that to make sure all our key people will stick around so we can make the most of our opportunity. I’m glad you and everyone else at the top now have more reason than ever to stay, but, seriously?
First, in case you haven’t done the math, those bonuses amount to roughly $6,000 for each of the 8,500 American patients who could be helped if the Food and Drug Administration approves our new compound in the next few weeks. There’s a reason the shareholder adviser service Glass, Lewis & Co. called the bonuses exorbitant.
True, the payouts would be in Vertex stock and would not be directly funded by drug revenue. But the value of those shares will be based largely on the commercial value of the company’s cystic fibrosis treatments. The more patients pay for our drugs, the more you stand to gain.
Second, didn’t we get the process backward? Shouldn’t we be rewarding people for their achievements rather than committing in advance to pay them, regardless of the outcome?
Yes, I know there is a performance requirement attached to all that money. But everyone gets their bonus as long as Vertex makes a profit — any profit at all — over the next three years. That’s got to be a joke. Considering the billions the stock market expects us to pull in over the next few years, earning anything less than a very large profit should be grounds for termination — not the trigger for a bonus windfall.
Finally, it’s not like Vertex had been stingy paying its top executives. The company gave each one of them substantial increases last year — even before the retention bonuses were thrown into the pot.
Let’s take you: Without the retention bonus, you were still getting over $21 million, about 60 percent more than you earned the previous year. Did you know George Scangos, the chief executive over at Biogen Inc., made less than $19 million in 2014, and it was his best year ever there? As much as I love Vertex, there’s a reason Biogen’s market value is three times as big.
Overall, you ranked 18th among the highest-paid chief executives in America for 2014. I know CEO compensation is crazy at lots of companies, but doesn’t that seem high? Institutional Shareholder Services, the biggest advisory firm, says your total compensation was “excessive” last year.
Today, we have a chance to tell you what we think about executive compensation at Vertex. Both ISS and Glass Lewis have recommended we vote against the company in our annual “say on pay” question. I’m with them, and I hope the nonbinding vote sends a message.
This is going to be an exciting year at Vertex. The FDA should approve our new compound, and the company can help more people live better lives. But that drug, like many other rare-disease treatments, will probably cost hundreds of thousands of dollar a year.
Many companies insist prices like that are necessary for rare-disease treatments because it’s so risky and expensive to develop the drugs for small numbers of patients. There’s truth in that. But it’s harder for Vertex to make the case while it’s committing so many millions to managers before its new treatment even reaches the market.Steven Syre is a Globe columnist. He can be reached at firstname.lastname@example.org. Follow him on Twitter @GlobeSteveSyre.