The consultants at the Hay Group are giving Big Pharma a spanking for its long-standing practice of rewarding execs based on short-term financials rather than the long-term pipeline innovation needed to come up with new products and gin fresh revenue.
Looking over the bonuses handed out at 50 large and small drug developers last year, the Hay Group concluded that 80 percent of the metrics used to determine incentives "are financial while only 12 percent relate to drug development and commercialization." And that's not good enough, they add, in today's harsh world. Biotech company executives, meanwhile, are given bonuses based on innovation and research advances. Adds Hay: "Biotech firms that live and die based on whether their drugs are approved have been much more creative in weaving pipeline and R&D measurements into their incentive strategies."
"We believe the pharmaceutical industry plight should prompt companies to step back and ask some fundamental questions," says Irv Becker, national practice leader of the U.S. Executive Compensation Practice at Hay Group. "For example, should short-term incentives continue to play such an important role for senior executives in an industry with incredibly long, multi-year product development cycles?"
Of course, quite a few biotechs don't have anything except pipeline innovation and the progress of experimental therapies to offer bonuses on. Necessity can be the mother of invention for bonus deals as well as new technology.
- here's the Hay Group release