Over the Pill
Welcome to “Over the Pill”, the Berenberg podcast where Kerry Holford & Luisa Hector lift the curtain on the messy reality of analysing pharma share prices. With over 30 years of friendship, Kerry & Luisa invite listeners into their regular debates on pharma strategy, drug pipeline prospects and commercial power.
Over the Pill
Episode 12
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Listen to Kerry and Luisa discuss the findings of their analysis of the latest remuneration packages for the executive committees: Pharma CEO remuneration. 2026 brings greater alignment with shareholders as LTIPs are more closely linked to “total shareholder return”. This is largely driven by CEO changes at Novo Nordisk and Sanofi. Interesting snippets across the companies are revealed. The scores are in for the 2023 total compensation packages and the 2025 annual bonus delivery. The best share price performance over 2023-25 was delivered at Eli Lilly (+194%) where remuneration scorecards have the smallest number of metrics, pipeline has the second highest weight in the annual bonus, LTIP is linked to “total shareholder return” only and the highest proportion of remuneration is delivered in equity.
Hi, I'm Kerry Holford.
SPEAKER_00And I'm Louisa Hector.
SPEAKER_01Welcome to Over the Pill, the weekly podcast on the latest hot topics in farmer investing.
SPEAKER_00Right, we have a publication today. It's one of those tricky ones. Huge amount of work. It's the analysis of farmer CEO remuneration.
SPEAKER_01Yes, hugely detailed, sensitive topic.
SPEAKER_00It is. And all of the remuneration packages are different. So your head starts spinning after a while, but we've pulled it together in the best way that we can. So what we do, we've got 11 large farmers that we're covering. We are looking at the remuneration package, essentially the 2026 package. Although, to be fair, we don't have that colour for all companies. Some of them are only just telling us about 25. But we're looking to identify any changes in the metrics of the incentives for the management teams. And that would give us some colour perhaps on where strategy may be heading. And we're also looking at the contribution of different metrics and alignment with shareholders. So how much of the overall package is connected to total shareholder return, how much of the various awards annual or long term are delivered in equity, aspects like this. So we've got a lot of work there on the benchmarking. We also have a page per company where we drill down specifically on each company's metrics and how they may be changing. And at the end of each year, as we kind of roll into 26, for example, we can now, you know, the scores are in for the 2023 package. So we're actually looking to see how they delivered on 2023, which comprises of a base, an annual bonus, where the scores were already in at the end of 23. But now the LTIP scorecard has also delivered. It's normally three years, so we get that. So we can have a look at that overall delivery on the 2023 package, as we think also about 26 and what they're set up to do for the next three years. From my side, just as an intro, Kerry, the the main thing we spotted really was very little change in metrics specifically, right?
SPEAKER_01Yeah, this year there were there were a few changes, but just generally seeing over time, I guess, increased LTIP exposure to total shareholder returns. And that was more evident at some than others.
SPEAKER_00Yeah, I mean that also came because we had CEO change. Yes. And in both cases, there I think part of the change connected with share price performance, right? So specifically Novo and Sanafi. And when we look at the group, we see this shift. So in 2023, 45% of the long-term incentive was connected to shareholder return. In 26, that has increased to 55%. And we think this is good, right? This is good alignment with shareholders. It's a positive direction of travel. But that shift, the increase, was very much connected to Novo and Sanafi. So do you want to outline what happened at Novo, the change there?
SPEAKER_01Yeah, I mean, as you say, with regard to that really poor share price performance, we've seen really since the end of 24. The new CEO are now on board as of mid-year, and we can see the details now for his 2026 LTIP award bringing on board that relative total shareholder return metro, which has been absent previously at Novo. Oh, yeah, that's encouraging, I think, to your point with regard to alignment with shareholders.
SPEAKER_00Yes, and then at Sanafi, Belen has has now arrived, but they have published the details of her long-term incentive. It's a little bit more complicated and it's split into two tranches: a medium-term and a long-term tranche. All of it is requiring a four-year tenure, and then the medium-term tranche looks at performance over a three-year period, long-term is looking over five years, and that long-term element is particularly connected to the share price. So that is essentially increasing the weighting towards being rewarded on the share price performance. So it's encouraging, but obviously there's a lot of steps along the way to help push the shares and add value as we move forward. So that we'll watch and see how her start goes, when she will first communicate with the market, perhaps a some kind of event later this year or into next. And I think what's interesting as we focus on this link to total shareholder return, you know, we've now analyzed the performance period 23 to 25. And the first thing we always look at is the actual share price performance in that window. And I mean, the results of that in itself are stark, right? Lily shares are up 195%. That marks the positive end, whereas Pfizer down 50%, which was really that COVID unwind that was kicking in.
SPEAKER_01And we can touch on that surely with regard to the impact that's had on the Pfizer LTIPs.
SPEAKER_00And worth mentioning with Lily, you know, we can see that 100% of the long-term incentive is linked to total shareholder return.
SPEAKER_01Yes. And really it's the simplicity of that as well, right? It's across the board, the simplicity of their scorecard. They have the fewest performance metrics, and one of the highest paid in terms of proportion allocated to equity. And as you say, that focus on LTEP, TSR for the LTEPs.
SPEAKER_00Yes, and a pipeline metric within annual bonus. Yes. Okay. Now we always find a few little interesting items as we go through this. Maybe we can go company by company. Alphabetically. Let's do that. So I'm early in the alphabet, Abvi. Not so much in the way of change, but what we did see for the first time were the scorecard metrics for head of RD, so RuPel. And this I thought was interesting. So his scorecard is a little bit different to the rest of the management team. And it does include business development. So 20% of the annual bonus is connected to business development. That's just a 10% metric for the CEO. And then also for head of RD, 50% of the scorecard links to RD and innovation. So that all makes a lot of sense. But really, the business development I thought was interesting because obviously this is a company where we've been discussing with investors how much they would like to see more deals. We've had a lot last year, very early stage, but I think there is appetite from investors to see something, perhaps a little bit more later stage pipeline related. So intriguing that he is incentivized on that more significantly than the CEO. Next would be AstraZeneca. And actually, here, I mean, for us here, it's always really interesting. We get a lot of detail on the metrics, short and long term. And I think the most interesting part is the dollar cash flow targets that are revealed for the LTIP. They don't give the annual bonus target, but they do give it for the LTIP. It's a range of cash flow. So it becomes quite a good way of checking your operating margin as we look out to 2028. So again, we show our chart, figure 21, which just gives us versus the range and consensus as well. And we notice here that the Astra team definitely always delivering at the top end of that range on cash flow. The one I was interested in here, so Adam Lankowski, who is COO, so he actually was granted a long-term stock award in November of 2025 to recognize his contributions and value to the company. I'm gonna leave that one there.
SPEAKER_01It's Lily now. So we touched on it in the opening remarks there. A relatively simple set of remuneration data to run through here. I guess aside from that sort of simplicity and the pure focus for LTEBS on TS, which has clearly done very well for the CEO, we noted that in 25 they have expanded their compensation benchmarking peer group. So they now also, in addition to looking at 14 pharma peers, they look at 22 general industry peer group companies when considering the compensation benchmarking for the executive team. And few of them go that broad. So that I think is interesting and is perhaps reflective of the scale of the company now and the growth that we've seen. Okay. Next one for me, GSK. So clearly another company here with a new CEO who's been at the company a while. But we have some detail here now on Luke Miles and his base pay being slightly below Emma Wormsley's as he steps up to the role now in 2026. But interestingly, there is a clear desire to move forward with remuneration and bring GSK into line with some of its peers. And the promise here, albeit performance-dependent, is that Luke's salary will potentially be subject to a 10 to 12% annual increase each year through 27 and 28. So watch for that. The other interesting snippet here is the metric within the LTIP that relates to pipeline sustainability is contingent on the 2031 sales guidance remaining at least 40 billion sterling. So interesting because we have had some investor debate about Luke and whether he will change that outlook. But clearly, personally, he's incentivized to keep it. And we're expecting to hear more from him with that recently announced update to the market a Q2. We would not expect any change to that outlook. Back to you on the Merck.
SPEAKER_00US Merck. So this was just a little comment on Rob Davis, CEO. So he has now been 10 years at Merck, which means he's now entitled to a $2 million payment upon leaving the company. Different ways you can interpret that as well. Novartis.
SPEAKER_01Yeah, Novartis was pretty straightforward, not many changes to highlight here. Perhaps the only thing to comment on here is that it was explicit the 2025 financial performance for the bonus excluded the impact of US tariffs. So this unplanned inventory build that we saw in 2025. So that adjustment was made to the calculations for the bonus for the CEO. Next one for me, Novo Nordisk. So there was a fair bit of change here, and we touched on it again in the opening remarks. That new TSR metric now coming on board for 2026 LTIPS. The other thing, I guess, to point out here is the payments that have been made to executives as of 2025. I guess this concept of golden goodbyes. You can see in the annual report they spent approximately $29 million, let's convert it to dollars, on executive pay in aggregate. But another $33 million was allocated to termination payments. So saying goodbye to the previous CEO, but also four further executive committee members exited last year. So quite a sizeable amount allocated to goodbyes. I remarked on this previously. The focus here really relates to the historical LTIPS 2022, and now this year again, the impact on the 2023 LTIP, which means we can't yet conclude. We don't have the final result for what the executives have been paid at Pfizer because those two years of LTIPs were effectively changed in flight, and the performance period over which they will be assessed has been extended by two years. So it'll be next year when the 2022 LTIP is finalized. They did this at the time, we commented on it to reflect the decline in the business post-COVID. And the proposal here was that this was required in order to retain and attract talent for about 9,000 current employees who had effectively been out of the money on their existing LTIPs. It is interesting. That one is still contentious. We saw the shareholder vote on the say on pay in 2025. That was scraped over the line with 55% approval rating. So it's still, I think, a difficult item for investors. And we haven't seen many other examples, if any, here in the analysis this year of adjustments to LTIPs in flight.
SPEAKER_00Okay. A final two. Roche, well, Teresa Graham, CEO of Roche Pharmaceuticals, she had a 10% increase in base, annual bonus, and LTIP value. Roche overall is the company where we get the least information on metrics and so forth. However, they are highly linked to equity award. So that's Roche and then Sanafi, we touched on earlier, but maybe just to add the non-compete for Paul Hudson was reduced from 12 months down to nine months. So that's it. Do take a look at the report.
SPEAKER_01That's our best effort of rattling through everything there, but it's there's a huge amount of detail. So please do take a look. So on to this week, we have still Q1 results to come from Pfizer, Nobonordisk, Zealand. That'll be me busy this week.
SPEAKER_00And then we're back on the road. So we've actually got a couple of weeks where we can't record. We've got an event on the East Coast next week, meeting a lot of companies, and then the Berenberg Manhattan Conference.
SPEAKER_01So lots to crack on with Louisa. I think we should get back to the desk. We would love to hear your feedback and your requests. Please do email us as ever at kerry.holford at Berenberg.com or Louisa.hexa at Berenberg.com. Thank you for listening.