URL to article: http://pjmedia.com/blog/ceo-salaries-and-pharmaceutical-costs/
I had a conversation recently with someone who was quite upset about how much money pharmaceutical companies spend on CEO compensation — at a time when many people are not able to afford necessary medicines.
While I do not support restricting or limiting compensation, I also often scratch my head and ask, “Does it really make sense for a corporation to give someone tens of millions a year to run a company?” Beyond a certain point, there’s no useful way to spend the extra money. Someone who gets $30,000,000 in a year is grossing more than $82,000 per day, or $575,342 per week. How many steaks can you eat, how many vacations can you take, how many homes can you occupy, how many Ferraris can you drive?
Still, I thought it would be interesting to see how much pharmaceutical makers are spending on CEO compensation, and if this might be a factor in the costs of lifesaving pharmaceuticals. Forbes keeps track [1] of the top 400 CEO compensation packages for American corporations. Pharmaceutical company CEOs are NOT unusually highly paid. There are a few pharmaceutical CEOs in the top 100, but only a few. By comparison, other sectors, such as health care, communications, entertainment, consumer products, and stuff of questionable actual value [2], are more common in the top 100 list. UnitedHealth Group’s CEO is the top: $101,960,000 [3].
When I started digging into the details of these compensation packages, however, I noticed something very interesting, of which David E. I. Pyott of Allergan (a drug company) [4] is pretty typical: The vast majority of the compensation is stock gains, not salary or bonuses. Of Pyott’s $33.76 million compensation, $30.64 million was stock gains — not salary, bonuses, or other forms of direct compensation. In practice, this means that what the company actually wrote him checks for was about $3 million; the rest is the result of stock option grants.
