The 2014 ASX Biosciences Compensation Hall of Fame

As we get into the thick of ASX reporting season, it seems like a good time to look back on last year’s compensation league table and see what everyone got paid in the “Long Tail” of the ASX biosciences.

Executive compensation is a critically important success parameter for a company and it tells you a great deal about management’s attitude towards responsible and effective resource allocation. I’d like to state from the outset – I am no ‘commie‘. I like money, though I am a capitalist with a slightly pink tinge. That means that I am perfectly comfortable with CEOs and Directors/Chairs getting very VERY well paid, but not infinitely paid, and not in a fashion that is decoupled from company performance. Whenever I diligence a company, executive compensation is my first “sniff” test, particularly for very early stage companies. It tells you pretty much everything you need to know about the corporate culture. This is particularly the case if an early-stage CEO is taking a huge pay check because it probably means they don’t really believe in the future of the technology – they are effectively electing to take $s of the table now, instead of a big return-on-effort in the future.

Here are the 2014 rankings:

The 2014 "Top 10"

The 2014 “Top 10” of the Long Tail

Well, no real surprises at the top of this particular league table.

Dr Philippe Wolgen from Clinuvel (ASX : CUV) always tops this list but then we should all be a bit sympathetic. After all, he had to move from his beautiful Switzerland in order to rough it Singapore* (truly on the company’s dime, they even pay his rent). Besides, he’s a medic and also the company’s Chief Medial Officer and…well, that’s just life at the top, I guess. But hey, Clinuvel is selling a product! Er… sort of… But, if you thought $1.8m was a lot of dosh for a company with a $125m market cap and ~$3.5m in revenues, brace yourself. In their freshly-minted annuals for 2015, you will find that the good Dr. Wolgen received a total compensation package of $6.3m, including over $4m in performance rights. Its also worth knowing he also generously took $150k in lieu of 50 days unused leave…clearly $3k/day is the going rate for Philippe to sit on his posterior, sipping Aperol Spritz, and dreaming of his chateau on Lago di Garda.

Molto Bene!

You should be so lucky...

You should be so lucky…

The redoubtable Philippa Lewis jumped up the rankings a bit to take out 2nd spot, mainly because she claimed a cheque for taking Simavita (ASX : SVA) public. We are grateful. In general, I don’t believe that performance bonuses should be awarded for taking a company public, but rather for an “effective” IPO. Since the stock dropped 20% or so from listing to FYE, and has been basically flat since then, it will be interesting to see what FY15 looks like. While I am talking about the power-ladies in the table, as I have previously alluded in this forum, the lovely Jacinth Fairley of Starpharma (ASX : SPL) is fairly close to the top of the pack (pardon the pun). She is usually #2 or #3 on this list, and generally takes a decent slab of options/performance rights. Incidentally, I don’t know why she calls herself “Jackie” – I think that Jacinth is a lovely name (sincerely). Exotic name not withstanding, she is overpaid, even considering a “meaty” $2m signing payment from AstraZeneca.

Interesting to see that two of my favourite “hollow chocolate bunny” regenerative medicine companies – Cynata (ASX : CYP) and Regeneus (ASX : RGS) – get special mention. Cynata, in fact gets two gongs for both Stewie Washer and Ross McD. Well done lads! Extract your cash while you can! John Martin of Regeneus gets a special mention for the taking the most off the table while delivering the least value to shareholders, including a non-existent market cap and impressive share price destruction. Tells you everything you need to know about the company, really.

To my mind, the real star performer is Rick Carreon of Impedimed (ASX : IPD). We always have to allow that his package is going to be a bit more competitive given he is US-based, but I think his total compensation is spot-on relative to the performance of the company, possibly even a little under. Scott Richards also takes a very reasonable package given that Mayne (ASX : MYX) is a revenue-stage company and has a totally different level of execution complexity. Perhaps somewhat controversially, I am also not completely irritated by the ‘package’ for Garry Phillips of Pharmaxis-fame (ASX : PXS). He has accomplished quite a lot for the company, at least relative to where the company was. Possibly a little on the high-side given the market cap of the company, but not offensively so.

I would like to make some special mentions outside of this “top 10”:

  • Mike Kavenagh at Nanosonics (ASX : NAN), who missed the top 10 by 3 grand (a mere day of holiday pay for Philippe), having slid from the board to the hot seat (having finally jacked in his job at ResMed). I’m ok with that – in general he is building quite a bit of value for shareholders, even if still think the products are a bit goofy.
  • Wayne Stringer at Probiotec (ASX : PBP) who, having bled the company he founded dry (a whopping base salary for years), he conducted an executive search to find a replacement for his retirement. After what was clearly an exhaustive and comprehensive talent scouting exercise he appointed…drum roll…his son Wesley Stringer as CEO! Apparently on at least a genetic basis, Wesley was the standout candidate – according to Jared Stringer (honestly, I can’t even spell nepo… er… tism…).
  • Graeme Vesey, the ‘luminary’ co-founder of Regeneus just about made it 2 from 2 for “Co-CEO’s” from regenerative medicine companies to make it into the top 10 (must be a lot of money in MSCs?).
  • And… as always … Geoff CummingThe Man with the Gomer. Geoff from Anteo Diagnostics (ASX : ADO) pulled up as the 14th most highly paid executive in Australian biotech, with a ~$520,000 package. But that’s ok, because his shareholders love him and he can do no wrong. Hmmmm.

… In conclusion:

Compensation matters. I would like to see more directors/chairs get paid on the basis of performance, rather than eye-watering base salaries. I also think there needs to be more robust industry benchmarking, perhaps something that our esteemed industry forums could take a more active role in pushing (i.e. AusBiotech). But most of all, shareholders need to speak out. There are some pretty stunning examples of compensation largess in the industry and it needs to be called out.

I’ll be back again in a few months time to comment on who exercised some restraint, and who continued to gouge their shareholders. Just like Josh Starling.


*I should be clear to all my Singaporean readers, approximately 5%, that I LOVE Singapore. In fact, I prefer Singapore to Switzerland, Lor…!

Feature image pinched from a Daily Telegraph feature on Josh Starling. Love your work, mate. The picture of lovely Torbole pinched from here.

17 thoughts on “The 2014 ASX Biosciences Compensation Hall of Fame

  1. I pretty much agree with your comment “if an early-stage CEO is taking a huge pay check ………. they are effectively electing to take $s of the table now, instead of a big return-on-effort in the future”. However, your analysis doesn’t reflect that sentiment, because you have included long term equity incentives in your figures.

    As I’m sure you’re aware, the figures reported in annual reports as equity incentives do not reflect actual payments. In most (all?) cases, these individuals have not yet realised any cash from these incentives, and many of them never will. In some cases these options might turn into large amounts of cold hard cash eventually. However, that will only be the case if the company does well, so these amounts reflect the potential “big return-on-effort in the future” that you argue executives should be focussed on. Yet you include them in your table as if they are a bad thing? If you want your league table to reflect the sentiments you have expressed in your commentary, you should revise it to exclude the value of options.

    It’s also flawed to present remuneration data from June 2014 and the *current* share price in the same table. The simple fact is, where the share price has since fallen significantly (e.g. RGS), the current value of the options will also have fallen (possibly to zero) – unless of course the options were exercised and shares sold while the price was up. In any case, the only relevant share price with respect to your numbers would be the share price as of 30 June 2014, and even then, it would only be meaningful if you show what the change in share price was over that year.

    I’m also curious to know – what criteria did you use to establish which companies were “eligible” for this league table? I know of one *very* highly paid Aussie biotech CEO that is not on the list (he’d easily go straight in at number 1, based on cash payments alone) – and I’m talking about a company that is still at the R&D stage, not CSL!

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    • Dear Pat,

      Thank you for your useful comments.

      Firstly, I think I am fairly consistent in my position that in this forum I cover “small cap” companies. Generally I consider this to mean companies with a market cap of <$1Bn. So yes, you are technically correct (if you are referring to Silviu at Mesoblast) although my first sentence clearly does refer to the "long tail" end of the capitalisation range. Perhaps I could have made it clearer, but please indulge me (I have never covered MSB, but not because I don't have anything to say).

      Secondly, irrespective of whether you focus on base pay or pay+options, this "top 10" is the top ten. I am (to your point) well aware of how stock options function but at the end of the day these are often loan-funded programs, still have a financial/valuation impact and if they are not considered as part of up-side compensation, then how do you propose to consider it? Also, these are usually annual grants that potentially enable CEOs to accumulate a significant position in their companies over time, but are also typically not tied to any performance milestones anything more substantive than share price.

      To be clear, I have nothing against long-term incentive schemes as you may have gathered.

      Regarding my “flawed” approach, there is absolutely NOTHING flawed about what I have done. My goal is to show the trajectory of these companies because, in the case of significant (positive) share price movement it actually increases the probability that the option compensation has cash conversion potential. At the top-end of the compensation spectrum you would also hope to see a correlation with market cap, but in fact my table illustrates that this is not the case, which is part of the point. I suggest you look more closely at the table, it includes the June 2014 share price as well.

      To be clear, the CURRENT share price is there to enable my retail readers to look forward from the last major public compensation benchmark to the present day, and reasonably evaluate whether currently (or soon to be disclosed) compensation is reasonable or not. To that end, you may have simply missed the point of this article.

      As a final comment, I felt compelled to put total compensation together inclusive of options because it’s the only way to attempt to compare “apples with apples”. For example, Dr. Wolgen hardly has any equity in Clinuvel and prefers cash. Therefore a cash-only compensation comparison would be sort of odd and misleading as well.

      Thanks for reading.

      Long Tail
      PS: I note that total compensation also includes bonus, expenses, subsidies, etc.

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  2. Hi Chris, thanks for responding. However …….

    On the “small cap” point: fair enough, but it seems a little arbitrary. Yes, MSB has a market cap of (just) over $1bn, but it briefly dropped below that in recent weeks. Conversely, Mayne currently has a market cap of ~$800m, but it has been over $1bn as recently as a few weeks ago. Mayne had revenue of $143m and a gross profit of $75m in the 2014 FY. Over the same period, MSB had revenue of just $16m and reported a loss of $80m. Yet Mayne’s CEO’s total compensation was about half that of MSB’s CEO (and the cash component was about 1/3) …….. I would have thought this was a perfect example of the point you are trying to make? In my mind, it’s certainly a far better example than several of those that you have included.

    “Secondly, irrespective of whether you focus on base pay or pay+options, this “top 10″ is the top ten”.

    Sorry, but I don’t think that’s correct. If you take equity incentives out it, I think you will end up with a different list of people – at least towards the bottom end. For example, you report Stewart Washer got just $116k excluding equity incentives. I doubt if that would put him in the top 10 of many companies, never mind the whole sector!

    “Therefore a cash-only compensation comparison would be sort of odd and misleading as well”.

    No it wouldn’t. As you said yourself “if an early-stage CEO is taking a huge pay check because it probably means they don’t really believe in the future of the technology – they are effectively electing to take $s of the table now, instead of a big return-on-effort in the future”. Wolgen, Lewis and Carreon are taking *huge* pay cheques now but no options (which could provide a big return on effort in the future). So they are guilty of exactly what you are trying to call out. The others – not so much, in fact in some cases, not at all. As I said, your league table is at odds with your commentary. And just to reiterate, I actually agree with most of your commentary!

    PS – haven’t all of these companies already disclosed their 2015 results? I’m pretty sure they have (I think they had to be in by 30 August if they’re ASX listed).

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  3. Thank you for writing this article, Chris.

    It triggered a memory of a bizarre study outcome I read somewhere. I wish I could find the link to this study, but I can’t. It went something like this: The media was full of contempt for the obscenely high salaries that CEOs were commanding. Some policy-maker decided an obvious way to help fix the problem would be to shame the worst offenders into moderation by publishing their remuneration packages in the newspaper. Yet the campaign triggered an effect opposite to what was hoped for:

    The CEOs who weren’t on the “blacklist” read what their peers were getting paid, felt unfairly treated and mighty angry so demanded an increase in their salaries to be more in line with the “going rate.”

    Too funny! Too sad!

    Chris, I hope your post doesn’t trigger a salary blow-out among the small ASX biotechs!!!

    If anyone wants to read the extract referenced by Anne above, you can find here

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    • Following on from Anne’s comment, I played around with Chris’ list and expressed the base wage as a % of Market Cap, total package as a % of Market Cap, share price change relative to compensation, and tried to think about what is the best way to decide compensation.

      It obviously does depend on the individual, the company and many variables and as a small company you would have to pay for a great CEO…

      I’d be interested in how Aussie Biotech CEOs compensation is relative to USA Biotech CEOs…. Have they got the formula right ?

      PS – Regeneus was the standout on all measures – way over paid and way underperform

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      • Thanks to you and Anne for the comments.

        Look, my goal wasn’t to single out any company, rather draw out a dialogue on a remuneration vs performance. I chose to use 2014 numbers because (when the data set is complete) I will separately comment on 2015.

        And yes, relative to peer companies in the U.S., compensation is not really commensurate (as a function of market cap). I will address this alongside the 2015 numbers as well.

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  4. “Wesley was the standout candidate – according to Jared Stringer..”
    I believe Dustin Stringer would have been also well qualified by virtue of his name.
    Together the Stringer family took the top 4 paid salary positions in the company totalling over 1.5 million annual salary.

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  5. I heard an American VC talking recently and he said they rarely invested in people who wanted to get rich. People who go into startups to get rich, he said, are the first to bail out when the going gets tough. On the other hand, people with a passion to change the world with their startup will happily live on the poverty line if necessary to bring their innovation to the world. They might get rich in the process, but if that’s the motivation going in… beware.

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  6. It’s not just the base salary or the total package that shareholders should be looking at. Other perks such as travel are a massive rort. It’s rare to see these guys (and their management teams) traveling at the back of the plane and I understand one chairman of a now defunct Australian biotech (well supported by the Victorian government with all that free land…but I’ll say no more) used to travel first class on his many trips overseas. I read once that Bill Gates always traveled economy until Microsoft got its own airplane.

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  7. I think there are inherent challenges in comparing CEO compensation on a like-for-like basis, as no two companies in the mish-mash Biotech sector have the same characteristics or requirements of their CEO. At the same time, it’s also easy (for media in particular) to see big numbers and immediately conclude something, somewhere is out of whack.

    I believe observers should make their own minds up based on the value derived from a company’s CEO investment. Performing such a subjective and multivariate calculation is no easy feat, and is as likely to be determined by things we call ‘feel’ and ‘gut instinct’ as any more technical analysis.

    For example, in the same 2014 period, Sitex’s Gilman Wong earned $750,000 in base salary and his overall package was more or less the same as that of Jackie Fairley. In this case, I think gut instinct would quickly tell us which was the better value CEO.

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  8. I think they are all as thick as thieves. Just some get away with it because of share price performance. An art of a clandestine nature in itself.

    Anyone attend the AusBiotech conference? I’ve heard its more of a love-in for the mediocre and over-paid.

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  9. Pingback: Now I have heard everything… | The Long Tail

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