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Compensation Isn’t Just a Salary, More and More

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Housing loans, pet transfers, and post-departure paychecks are all part of genomics execs’ packages these days

By Aaron J. Sender

Salaries ain’t what they used to be. The average annual pay last year for a CEO of a Genome Technology Index company was well over $300,000. “But right now it’s really hard because of the marketplace,” says biotech recruiter Amy Laurier of executive search firm TechFind. “Two years ago people were getting 30 percent jumps in salaries. We’re only seeing 10 percent now, no matter who they are.”

Back when adding the suffix ¯ome or just slipping the letters g-e-n into a startup’s name was enough to have VCs practically throw money their way, and when quick, huge IPOs were a sure thing, executives could easily negotiate for a big chunk of cash. But now, companies that have already gone public loathe going to the trough again in this climate, and VCs are not nearly as eager to dump megadollars in a maturing market. “What’s happened is that there is less willingness to do high-powered searches — unless it’s critically important,” says Neil Solomon, president of life science executive search firm Neil Michael Group.

So biotechs and their potential hires are relying more and more on alternatives to base salaries to beef up compensation packages. True, some of these incentives are not new, but they are quickly becoming standards at the negotiating table.

 

ON THE MOVE Relocation reimbursement is no longer an extra. “Relocation packages are standard at a lower-middle level all the way up to the top in most companies,” says Eric Mankuta, managing partner of recruitment firm Mankuta Gallagher and Associates. Many companies don’t think twice about spending tens of thousand of dollars to move a new employee. “And certainly at the higher levels, the relocation packages are often richer, especially when you’ve got individuals who are either moving to northern California or Boston,” says Craig Kasper of the Neil Michael Group.

Perhaps one reason paying for moving has become the norm is biotechs are now more often looking for experienced executives. “The young guys, all they did was take the ride during the good times. They haven’t had to deal with managing their way out of crisis and lack of resources,” says Solomon. “So there are a number of companies now that are really looking for the silver-haired guys,” he says. And those people tend to be more entrenched in their community and many have young children in schools.

 

GETTING LOAN-LY In January, Incyte offered its new CSO Robert Stein a $750,00 interest-free loan. If he is still with the company by the end of November 2004, Stein will only have to pay pack half of it. If he stays another year after that, all of it is his to keep.

Employers may assist with anywhere from a few points on the mortgage to a portion of the down payment, or even effectively buy the executive a house through forgivable loans. Terms of the home loan can vary considerably. Usually, they are forgiven over a period of time. “Every company handles it differently,” says Mankuta. “Many will say that if a company hits a certain profit margin in X amount of years, half of it is forgivable. Or they’ll say you have to pay it back if the stock appreciates a certain amount; if it doesn’t appreciate in a certain amount of time, then you have more time to pay it back.” Companies also usually pay the taxes associated with the cancelled loan, considered income by the IRS.

But be careful. If you don’t stick it out, you could be left with a large debt to repay. In 1999 Lynx CEO Norrie Russell borrowed $250,000, forgivable over four years. Russell left several months ago with only $100,000 lopped off the interest-bearing loan.

Not all loans are linked to home purchase, however. In May, Hyseq loaned its CEO Ted Love $2 million so that he could repay money owed to chairman George Rathmann. Companies often lend executives large sums of money to exercise stock options. Akin to buying stock on margin, many companies have recently been burned for entanglements with employees’ personal finances in this way. If the stock doesn’t perform well, the executive may have to dump shares in the company and may still not be able to repay the loan. As a result, some companies, such as Applera, have declared this practice a no-no.

 

BONUSES These come in several flavors. For senior levels, such as CEO, CFO, COO, or CSO, bonuses are sometimes guaranteed. “But I don’t see that often,” says Mankuta. “To a large degree, cash bonuses are driven by the performance of the company or the individual.” They are linked to particular milestones such as reaching a specific amount of revenue or closing a certain number of deals. For example, Gene Logic CEO Mark Gessler received $237,500 for leading the company through its IPO atop his already hefty salary. Bonuses at public companies are more than a little extra to help with holiday shopping. Applera CEO Tony White took home an extra $646,834 last year, including $127,193 for personal use of the company plane. And year-end bonuses can be huge in comparison to salary. Bruker Daltonic VP John Wronka, for instance, received a base salary of $76,592 and a bonus of $138,531.

Don’t count on sizable awards from a startup. “They can’t afford to start throwing around cash bonuses,” says Mankuta. “Early-stage and even mid-stage biotech companies often say the bonus is the stock options.”

More and more companies are now offering cash up front instead of locking in a higher salary. “Signing bonuses have become fairly common,” says Mankuta. Molecular Devices, for example, gave Joseph Keegan $150,000 for taking on the CEO position in March. Most companies in the sector, though, don’t shell out more than $50,000 for a signing bonus.

Another sweet deal easily negotiated is 12 months’ worth of severance pay. Daniel Kisner, until recently CEO of Caliper, will continue to get his $423,516 salary for a year unless he finds another job. (Why look for one, one might wonder?) Hyseq’s Love has an even lovelier clause in his contract: a lump sum payment equal to his then- current base salary.

Although more rare, some companies agree to pay for frequent trips back home for a number of years, for instance if the spouse is not relocating. Some will also pay for a chauffeur. “It really ends up being [about] how badly the company wants someone and how badly the individual wants to be in the company,” says Mankuta.

 

OPTIONS The amount of stock options a new recruit can expect depends on two major factors: the level of the position and the stage of the company. A CEO, of course, will get more shares than a middle manager. And a young startup will dole out more shares than one that’s already public. “If it’s a very early-stage company, there is more risk, so the number of stock options are usually much higher,” Mankuta says. But because IPOs are no longer just around the corner, options don’t hold the cache they used to. Long gone are the days of lower pay in return for a significant part of the company. You can’t take stock options to the bank. In fact, many executives today are stuck with options to buy hundreds of thousands of shares at prices as much as 15 times their current trading price.

 

FUNKY DEALS Sometimes compensation requests go beyond the norm. “We negotiated 18 months of temporary housing in London,” says Laurier. “They can live there for 18 months free, make sure they like the job, before they move their family. Is that rare? Yeah. But they wanted him badly enough.”

Mankuta had one client, an academic, who insisted on bringing his lab with him to the biotech where he would become a high-level executive. “They gave it to him. He brought a half a dozen people who ended up going on the company payroll and they provided space for a lab.”

Laurier once arranged for relocation of a potbelly pig. And several biotech recruiters reported negotiating transporting horses.

The most importing thing, says Laurier, is for the candidate to put it all on the table right away. “They have to be honest with the recruiter and tell them everything about their last job: what they got paid, when their next raise is expected, what the bonus expectation was,” she says. “A lot of people forget it until the deal is negotiated and they go ‘Oh yeah, and I just had a 30 percent performance review last year.”

“Here’s the biggest tip,” she adds. “Look at the job — the stability of the company and the science versus the money. Especially in times like these when the economy is questionable at best.” Your decision, she says, “should be about the job, and not about the money.”

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