CAN BIOTECH BE A DIVERSITY LEADER?
Biotech Compensation Report tells the story of a thriving sector that still has room to grow.
It’s been a big year for biotech. And that momentum shows little sign of abating. Market predictions have sector growth topping nearly 16% CAGR over the next seven years, with an increase from $447.92 billion to $2.44 trillion. Innovations in bioinformatics, CRISPR, spheroids in drug development, and Quantitative Cell-Based Assay continue to be significant drivers of this trajectory. Meanwhile, more recent developments in genetic sequencing technology and biogenetics are drawing enthusiasm from investors, further pushing innovation and growth in the sector. Even the global impact of the pandemic did not diminish — perhaps predictably — the attention and capital inflow from investors into the biotechnology field.
As a measure of this sunny outlook, compensation in the sector — at both the board and C-suite levels — has been impressive. Competition for top-seeded executives and board members has been fierce, with compensation at this level reflecting the sector’s hunger for talent.
As a leader in executive talent and board member search, the Bedford Group TRANSEARCH drilled down into the sector’s dynamic compensation practices to produce the recently published “Executive Compensation Report: Biotechnology.” The intelligence is enlightening — both in what it reveals about where the industry is doing well and the areas where it could be doing more.
BIOTECH IS THRIVING AND SO IS COMPENSATION
Biotech C-suite compensation is healthy. The report marks a range of total compensation for NEOs (Named Executive Officers), with companies having under $100 million in market cap on the lower end and those at $1-to-$2 billion market cap at the top. For CEOs, this was reflected in a median range of $900K, to just under $4M. COOs came in at around $400K, to just under $2M, while CFOs started higher on the low end, at mid-$400K, but topped out at just under $1.7M.
On the board member side of things, the report notes that nearly 88% are given an annual retainer for their participation, ranging from $35-to-$40K, with total compensation ranging from almost $75K to $265K. Predictably, chairperson compensation is higher, with a median range of around $100K to $300K, depending on the market cap of the company.
The report’s intelligence gets more interesting where diversity and gender parity in the sector is concerned – and some fascinating observations can be inferred from that information.
GENDER AND ETHNIC DIVERSITY FAILS TO IMPRESS
To no one’s surprise, there’s still ground to be made up in the efforts to increase the proportion of female and diversity voices represented in both C-suites and boards of biotechnology corporations. It’s an ongoing effort to redress the inequities of many decades and to more fully tap into the under-represented resource of talent that exists there. No doubt, there has been marked improvement over the years but the report shows that it’s not an area where we can afford to relax our efforts — either ethically or economically.
According to the Bedford Group’s report, of the 1,254 board members analyzed, female board members made up just 14.2%. The number of female board chairs and CEOs was an unimpressive 5.7% and 5.8%, respectively. Taking the entire pool of NEOs into account, the proportion of female executives increases to 10% — a greater but not altogether laudable rate. It’s hard not to judge these numbers without a certain degree of harshness. But some of the report’s other findings do speak to nuances in the dynamic.
Comparing female and male board member compensation, we can see that women averaged between $74K and $300K, while men saw between $72K and $240K. While not wildly different at the bottom end of the scale, we can infer some things from the $60K+ difference at the top end. Despite the lower numbers of women on boards, the desire to have female representation may come with certain added financial incentives.
However, the limited data set (in other words, the very few women directors represented in the report) makes it impossible to attribute this to any trend. The report also states that, on average, of the 52.2% of corporations that had both female and male directors, the males directors were paid more than their female counterparts. This speaks to an ongoing imbalance, even where boards are more inclusive. In the end, those boosted numbers in female board member compensation probably say more about certain corporations’ compensation scales than they do about their equity policies. Boards that have female directors do pay better overall than ones that don’t — but not equally so.
DIVERSITY EFFORTS STARTING TO SHOW PROMISE
NEO diversity efforts have been somewhat more successful, with 15% across the C-suite and 15.2% of CEOs being members of a visible minority. Board membership for visible minorities (14%) was about on par with the percentage of female board members, but slightly less represented (4.3%) at the board chair level. Compensation disparity between Caucasian and non-Caucasian board directors is a continuing factor.
Curiously, the NEO position with the highest proportion of female and diversity representation was that of Chief Legal Officer, at 13% and 17% respectively.
WHAT CAN WE DO BETTER?
Clearly, efforts can be made to increase the proportion of Biotech C-suites and boards that have female and diversity representation. The ethical reasons for this are obvious but the economic reasons are equally, if not more, compelling.
McKinsey analysis has shown that “companies in the top quartile for gender diversity on executive teams were 25 percent more likely to have above-average profitability than companies in the fourth quartile.” Furthermore, “[c]ompanies with more than 30 percent women executives were more likely to outperform companies where this percentage ranged from 10 to 30, and in turn these companies were more likely to outperform those with even fewer women executives, or none at all.”
The case for ethnic and cultural diversity is equally convincing, with McKinsey having found that the “top-quartile companies outperformed those in the fourth one by 36 percent in profitability” and that the “likelihood of outperformance continues to be higher for diversity in ethnicity than for gender.”
Those are significant measures of benefit. And, given the continued lack of gender or ethnic diversity in the C-suites and on boards, it’s evident that an incredible resource of leadership talent is being kept from having the positive impact it could.
Biotech organizations should actively pursue strategies to bring more female and BIPOC executives into the C-suite and onto their boards — not simply as an inclusion effort but because it’s a not-yet-fully exploited resource in a market hungry for extraordinary executive leaders.
WHERE DO WE START?
Start by having your executive search firm make gender, ethnic and cultural diversity important factors in executive and board searches. This will often yield impressive results, pushing less status quo candidates into the spotlight and give you access to a pool of untapped executive talent.
Gender and diversity targets can also be baked into organizational policy — and those targets can be made enforceable and incentivized. If the targets aren’t being met by force of goodwill, make it costly to ignore. Companies like McDonald’s, Nike, and Amex are leading the way on this by tying executive compensation to specific diversity goals. A third of S&P 500 companies have started using a diversity measure in their compensation structures.
The outlook for the biotechnology sector is strong. The industry will grow and become increasingly innovative and profitable — even if things remain much as they are.
But there is powerful evidence of the benefits of pushing forward with gender and ethnic diversity policies. If that evidence bears out, bringing more of that executive talent into Biotech’s C-suites and boards will be rewarded with much more impressive gains in all those measurable areas. And failing to do so could be as good as leaving money on the table.
Bedford Group. “Executive Compensation Report: Biotechnology.” The Bedford Group TRANSEARCH. June 2021. home.bedfordgroup.com/biotechnology_compensation_report
Sundiatu Dixon-Fyle, et al. “Diversity Wins: How Inclusion Matters.” McKinsey & Company, 19 May 2020, www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters
Glazer, Emily, and Francis, Theo. “CEO Pay Increasingly Tied to Diversity Goals.” The Wall Street Journal, 2 June 2021, www.wsj.com/articles/ceos-pledged-to-increase-diversity-now-boards-are-holding-them-to-it-11622626380
Download and read the new Executive Compensation Report: Biotechnology — the first of its kind — for more insights like these and for a comprehensive survey of the industry’s compensation practices.