Pfizer CEO gets 61% pay raise–to $27.9M–as drug prices continue to climb

Pfizer CEO gets 61% pay raise–to $27.9M–as drug prices continue to climb(arstechnica.com)

33 points by derEitel 8 years ago | 9 comments

ams6110 8 years ago |

His pay is salary of $1.96 million, and a $2.6 million bonus. The rest is in equity of various packaging.

Look, this is pretty much clickbait/outrage-oriented reporting. Sure it sounds ridiculous to most of us but the CEO salary is a drop in the bucket on Pfizer's P&L and it is not the reason that drug prices are high/increasing.

danbruc 8 years ago |

Would there be an article talking about Pfizer raising drug prices if they increased the hourly salary of every employee by $0.06? I seriously doubt it, but that amounts to the same $10.3 million [1]. The amount is insignificant when compared to the revenue of the company. The real story is how a certainly class of people managed to convince all the relevant parties that their work is a hundred times more valuable to the company than that of everyone else.

[1] 96,500 employees, 240 working days per year, 8 working hours per day

ams6110 8 years ago | |

> how a certainly class of people managed to convince all the relevant parties that their work is a hundred times more valuable to the company than that of everyone else

Well, because that is the case.

A line worker in a Pfizer manufacturing plant, can (within reasonable limits) be just about anyone, given necessary training.

The CEO can't be just anyone. Therefore he/she gets paid more.

danbruc 8 years ago | | |

That is the point that I doubt. Sure, it is certainly easier to find someone for the production floor, but I see no evidence that CEOs have such exceptional skill sets that there wouldn't still be millions of people who could do the job.

But even if that would be the case and people with CEO skill sets would be extremely rare, I would still have a problem with CEO compensation because then their compensation would be, so I argue, based on demand and not value provided for the company. The success of a company depends on all the people working together, without CEO the people on the factory floor don't know what to do, without the people on the factory floor the CEO doesn't get any product out. Neither party gets to claim that they are a hundred times more important than the other one.

Even if you agree that the compensation is mostly driven by scarcity, you will of course tell me that that is just how markets work, if good CEOs are rare and in high demand, then I will obviously have to offer a lot of money to get a good one. And I agree with that insofar, that this is how it currently works, but I consider it flawed. I would like to see, at least in some situations, prices not influenced by scarcity. If you now want to point out that this would ruin market mechanisms, that without scarcity increasing prices we would lose an important signal hopefully increasing supply, I also agree with this.

If I had a finished solution, I would have written it up and collected my Nobel prize in economics years ago. But that doesn't change the fact, at least in my opinion and at least in some situations, that prices are used for both, to measure the value something provides as well as how scarce something is, and that this link is sometimes desirable and sometimes not.

greenleafjacob 8 years ago |

Article states that the board needed an incentive to keep the CEO on since he was going to retire at 65 otherwise. Wasn’t this an entirely foreseeable outcome? I mean what will be different next year for example? I looked for some market force or exigency that would force the board’s hand but didn’t see any in the article.

gameswithgo 8 years ago | |

Perhaps the board is made up of other extremely high paid CEOs who have a hard time believing other people could do their jobs, for far less?

greenleafjacob 8 years ago | | |

That certainly was/is my initial bias.

replicatorblog 8 years ago |

I understand the frustration with profit-making companies in a space where human lives hang in the balance. I would prefer instead of attacking the CEOs of these companies, the entrepreneurial sorts who hang out on these boards start competing companies.

I don't expect them to compete with Pfizer at the start, Martin Shkreli showed how its possible to get into the drug business for relatively small sums. But instead of jacking up the prices, this new class of founder could show how it's possible to drive costs down using better management and less greedy business models.

Bonus points if these startups could release new drugs at OTC prices. My guess is after a few years, founders will start to understand the pressures that guide pharma in a more sympathetic light. What was once seen as wasteful marketing might more charitably seen as cross-subsidy of new drug development.

There's a decent amount of waste in the pharma business, but it's also the closest thing modern society has to a goose that lays golden eggs. Sovaldi is going to transform what it means to live with Hepatitis-C. It's incredibly expensive now, but in a decade when the patents expire, there will be a race to the bottom, price-wise.

If you don't believe this is the kind of problem that can be solved by startups, perhaps we should consider alternative arrangements. E.g. Could Harvard, with its world class science, business, and law departments turn their talents and $30B endowments towards developing new drugs? Maybe, maybe not, but I'd prefer we build up new models for regularly producing wonder drugs before we tear the old one down.