By Jacob Rund
Israeli drugmaker Teva Pharmaceutical Industries Ltd. reported a $19.3 million difference between its CEO’s 2017 compensation and the annual salary of its median worker.
The median annual pay of Teva’s employees totaled $64,081 last year, compared with new CEO Kåre Schultz’s $19.37 million in total compensation, the company said Feb. 12 in a filing with the Securities and Exchange Commission.
Teva’s 302-to-1 “pay ratio” is among the first to trickle in under now-effective SEC disclosure rules, required by the 2010 Dodd-Frank Act.
According to a recent survey from corporate research firm Equilar Inc., Teva’s ratio may be more than double the 150-to-1 average ratio for health-care companies. It’s also greater than the 275-to-1 ratio Equilar’s survey listed for its 12 respondents from Europe, the region reporting the highest numbers.
Behind Teva’s Numbers
Companies required to comply with the pay ratio rules must use employee pay information to determine who their median worker is. They then divide their CEO’s compensation for that same year by the median worker’s compensation to calculate the final spread.
Deborah Lifshey, a managing director at compensation consulting firm Pearl Meyer & Partners LLC, said the SEC’s rules give companies considerable flexibility to determine what information is used to calculate the median employee. This, she added, means these calculations—and the results—aren’t consistent across all firms.
Lifshey also said ratios will vary among certain industries, with some lending themselves to bigger spreads and others to smaller ones.
Teva said in its SEC filing that it included 51,995 full-time, part-time, and temporary employees in its calculation of median employee pay. It used a partial exemption from the SEC rules to exclude 424 employees based in Venezuela. About 45 percent of its employees are located in Europe, while about 17 percent are in the U.S.
Based on this data, the company identified a median employee living in Israel and converted the salary from Israeli shekels to U.S. dollars. It ended up with $29,159 in base salary and $34,922 of company contributions to a pension fund.
Schultz, Teva’s CEO, took over the role last year, which the company said contributed to its stated pay ratio.
Schultz received sign-on equity awards worth about $10.2 million when he joined the firm. Without those awards, Teva said the ratio would have been 143-to-1, meaning his annual compensation would have totaled about $9.1 million.
Few other pharmaceutical companies have filed pay ratio disclosures thus far.
Cambridge, Mass.-based InVivo Therapeutics Holdings Corp., a biotechnology company with 16 employees, reported a 6.4-to-1 pay ratio. Its former CEO left the company Dec. 18, but his $2.4 million compensation was used in the company’s calculations.
However, the company said in its filing that because the methods used to estimate pay ratios will vary among companies, these calculations “should not be used as a basis for comparison between companies.”
Lifshey also warned against such comparisons.
“It’s impossible to compare ratios across companies because everybody’s doing their own thing,” she said. “It’s also impossible to compare results over time, because it’s the first year these have been filed.”
There is some concern among companies that their employees could be angered by the ratio, especially if they are among the 50 percent that makes less than the median employee, Lifshey said.
However, investor and market reaction aren’t likely to be strong—at least this year, she said. “If you’re a practitioner, you know [the ratio] is meaningless.”
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