It’s too early to know the full impact of the economic meltdown on executive compensation at private technology and life sciences companies. Alas, 2008—or at least the first three fiscal quarters of it—could be viewed next year as the end of the good old days of executive compensation.
Still, for those of you who want to know how much your executive peers’ at said private tech and life sciences companies were compensated this year (or at least the pre-meltdown part of the year), your cup runneth over with the recently completed 2008 Compensation and Entrepreneurship Report in Life Sciences and a similarly titled report in information technology. The annual studies—conducted by the J. Robert Scott executive search agency, law firm WilmerHale, Ernst & Young, and academics at Harvard Business School [disclosure: the first two are Xconomy underwriters]—showed a continued trend that Bob noted last year of steady growth in executive compensation across the board in both life sciences (which in this post means medical devices too) and technology. And an interesting feature of the technology compensation study is the inclusion of clean technology companies for the first time. (Read on to see how their pay compared with executives in other segments of the tech industry. A hint: not great.)
Xconomy isn’t big on covering studies, because many lack the depth to draw serious conclusions, but these compensation studies appear to be quite thorough. The reports are based on compensation data from multiple private companies (342 from tech and 189 from life sciences), with a wide swath of executives (1,600 executives with 10 different job titles on the tech side, and 1,000 executives with 13 job classifications in life sciences). And all U.S. regions are accounted for—so our communities of readers in Boston, San Diego, and Seattle can see where they stack up next to each other (again, see our chart of the results on the next page). Also, the figures were gathered from April to June 2008.
I don’t want to touch the argument on whether electrical engineering courses are more difficult than microbiology, but the studies show that life sciences CEOs typically earn more than their tech counterparts, with average 2008 base salaries of $300,000 for top life sciences executives, up 6.7 percent from $281,000 in 2007, and $236K for the tech chief executives, a 4.2-percent increase from $227K last year. Though not explicit in these reports, perhaps it should be noted that the smaller size of the life sciences industry compared with IT, and the high degree of scientific/technological variation among life sciences firms, could make this compensation gap between the two camps a matter of supply and demand. I’m just speculating, though.
Bonuses. For those who get them—and for those of us who recall Clark Griswold freak over his jelly-of-the-month club “bonus” in National Lampoon’s Christmas Vacation—bonuses can add a potent kick to the compensation cocktail. Indeed, one of the highlights in both the life sciences and IT reports was a trend toward “pay for performance,” with a higher percentage of employees across the board in both camps eligible for bonuses in 2008 compared to 2007. And good news on this front for tech CEOs, for which the study shows an increase in target bonuses from $98,000 in 2007 to $102,000 in 2008, and these executives received an average of 71 percent of their bonuses last year. But the bonus outlook grew dimmer for life sciences CEOs, whose average target bonuses were down from $96,000 last year to $92,000 in 2008, and the average bonus attainment rate was 69 percent in 2007. Points here go to tech chief executives.
Equity, of course, is key—especially for the executive who thinks that his or her firm has the cure for cancer or the next iPhone under development. But equity appears to be harder to come by nowadays for IT CEOs. Non-founder tech chiefs had average equity of 5.46 percent in 2008, down from 5.7 percent last year. Even founding CEOs in tech saw their stakes dwindle this year, from an average of 24.79 percent in 2007 to 22.05 percent this year. The average equity of non-founder life sciences executives was up from 5.48 percent last year to 5.59 percent in 2008. The big winners in this category were founding life sciences CEOs, whose average equity rose from 13.37 percent last year to 17.12 percent in 2008.
Here’s a grab bag of other observations from the reports:
—The average CEO severance package in technology is 7.4 months. Their life sciences counterparts have a median severance package of 12 months (I didn’t see an average in there).
—In the life sciences report, there was an interesting Q&A with John Maraganore, CEO of Cambridge, MA-based RNA-interference drug developer Alnylam Pharmaceuticals (NASDAQ:ALNY). Here’s part of his response to a question about whether the M&A option is on the table for his company: “We have had options in our history to make a quick buck,” Maraganore says. “We have built the foundation to do that but aren’t taking that route.”
—In a similar interview in the tech report, Clinton Bybee, co-founder and managing director of venture firm Arch Venture Partners in Seattle, has this to say to a question about what makes a good chief executive in an emerging business: “I don’t know that there is one answer,” Bybee says. “Two very good models that work are, one, ‘done it before,’ or two, ‘you know the industry cold.'”
—New England life sciences CEOs, with average total cash compensation (base salary and bonus) of $422,000, are the highest paid chief executives in the country. Below are full lists.
2008 CEO Cash Compensation (base salary and bonus) By Business Segment:
Content, information provider—$364,000
Services, consulting, integration—$336
Hardware, semiconductors, electronics—$315,000
2008 CEO Cash Compensation (base salary and bonus) by Geography
Life sciences/medical devices
West—(sample size too small)
As for next year’s compensation data, let’s keep our fingers crossed for positive results.
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