At the September 16th meeting at MassMEDIC (the association of medical device manufacturers), the folks from Radford, leading compensation consultants, made a comprehensive presentation of trends in med device compensation.
Radford reports that salary budgets have been almost flat for the last two years, but a greater uptick is expected in 2015. Most interesting is the difference in the ways in which public and private med device companies structure their compensation.
Generally, privately owned firms compare themselves to a peer group within their industry with similar levels of invested capital, revenue, development stage and employee count; base salaries, which for a while were low-balled, now are viewed as necessarily competitive, with annual bonuses becoming more prevalent. Most importantly, equity is aggressively distributed, typically in the form of stock options, with awards being measured against ownership percentage in the enterprise.
Public companies identify with a small peer group of public companies with particular reference to market cap, R&D spending and product stage. More of the cash goes into an annual bonus and not into base. Equity is more parsimoniously distributed, with a strong movement toward restricted stock units. Units are issued based on their value in absolute dollars in relationship to overall compensation. Additionally although not surprisingly, as companies grow from private to small public to large public, the bonus metric becomes much more focused on profits.
The most predictable aspect has to do with the progression of executive compensation through the company tiers. Each of base salary, total cash compensation (including bonuses) and long term incentives increases as the company moves from private to small public, and from small public to large public status. This is true not only at the CEO level but also at the CFO level.
Finally, what Radford characterized as a “hot IPO marketplace” has heightened the interest of all employees, in companies of all stages, in equity compensation. This is just a matter of common sense, reflecting the general recovery of the securities markets and the robust performance of life science equities in particular, and consequently the greater potential appreciation values hoped for from the equity portion of comp.
No doubt public device companies are informed, with respect to their information concerning their peer groups, by SEC disclosure of compensation, which has been heightened over the last several years. Since practices in private companies are materially disparate in numerous areas, reference to public company disclosure for this cohort is not going to prove fruitful. For this private cohort, experience in actual hiring will be informative to management, as people are marked to market in an increasingly competitive hiring environment.
Can med device employers hold on to their employees, in this more mobile environment, by vigorous use of noncomp agreements? See my post of September 17th for the answer to that question.
Finally, hats off to the folks at Radford, upon whom I have wholly relied for the data in this post (interpretive commentary should be attributed to and blamed upon me alone).