miércoles, 22 de noviembre de 2017

USA: Pharma´s Financializes Business Model (II) / Pumping Up Executive Pay

Why do companies buy back their own shares? In “Profits Without Prosperity: Stock Buybacks Manipulate the Market and Leave Most Americans Worse Off,” William Lazonick argues that the only logical explanation is that stock-based compensation gives senior executives personal incentives to do buybacks to boost stock prices (Lazonick 2014b). There are two main types of stock-based pay: stock options, for which the realized gains depend on the difference between the stock price on the date the option to buy the shares is exercised and the date the option was granted; and stock awards, for which the realized gains depend on the market price of the stock on the date that the award vests (Hopkins and Lazonick 2016).

By using stock buybacks to boost stock prices and hit EPS targets, executives can augment the gains that they realize from exercising options or the vesting of awards. As shown in Table 2, from 2006 through 2015, the average annual total compensation of the 500 highest-paid US executives (not including billion-dollar-plus outliers) ranged from $14.7 million in 2009 (when the stock market was down) to $32.2 million in 2016, with realized gains from the combination of exercising options and vesting of awards constituting from 66 percent to 84 percent of the average annual total pay (Hopkins and Lazonick 2016).2 Stock-based pay incentivizes executives to take actions that increase the company’s stock price and rewards them for doing so. Buybacks are a means to these ends.

Pharma executives are well represented among the 500 highest-paid executives at US corporations. In the most recent years, as the average total compensation of the drug executives has soared even in comparison with the sharply inflated pay of the top500 as a whole, their numbers among the top500 have increased. As the average total compensation of the drug executives scaled new heights from 2012 through 2015, stock-based pay accounted for around 90 percent of the total.

Table 3 shows that, among the 18 pharma companies in the S&P 500 Index, a younger set of biopharma companies launched in the late 1980s and early 1990s account for the explosion in pharma executive pay. 

 Click sobre imagen para ampliar.

Table 4, which selects from all pharma executives in the S&P ExecuComp database (and not just from those companies in the S&P 500 Index in January 2016), identifies the six highest-paid pharma executives for each year from 2006 through 2015. 
Note the prominence, especially in 2012-2015, of executives from three of the biopharma companies in Table 3: Gilead Sciences (15 of the 60 cells), Celgene (7), and Regeneron (6). Also note the extent to which their pay is stock based. 

Gilead Sciences CEO John C. Martin appears on this top 6 list in all ten years, four times in first place, three times in second, twice in third, and once (2006) in sixth. (Más)

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 USA: Pharma´s Financializes Business Model (I) / dividends & buybacks

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