Vertex Pharmaceuticals

Meeting date: June 8

In 2016, Vertex writes, “74% of the “Say-on-Pay” advisory votes cast by our shareholders [were cast in favor], which was a significant increase in support compared to 2015.” Of all I read in the proxy statement that sentence stood out to me the most, the way they framed a low level of support.

If one of my children came to me to say they got a 74% on a test, which was a “significant increase” in a grade, I would not be satisfied. I’d acknowledge improvements made but still hold them to a high standard. Shareholders have an opportunity to give a similar message to Vertex at the upcoming annual meeting. Yes, pay is down significantly from a few years ago, but it has fallen from obscenely high to merely bad. CEO pay at Vertex is still out of line with peers and still includes problematic practices.

Vertex continues a practice of what some call “aspirational peers.” It includes larger companies in its peer group for establishing pay comparison. It is the job of the directors to take on the supervisory role and tone, perhaps saying something along the lines of, “We’ll talk about whether you should be paid as much as those big, successful pharmaceutical companies when you are as big and successful as they are. Until then, stop worrying about what they are being paid and focus on your own work.”

However, directors at Vertex apparently lean toward indulgence. The board set “company goals and assigned relative weights that reflected our operational, strategic and financial objectives for the year” with a maximum score of 150 points. Many of these, such as “maintain high productivity in research” as somewhat subjective. When the total earned came to 111, the board awarded an additional 9 points “based on additional factors that were not anticipated in our goals.”

Also of note, a Boston Globe analysis of director pay, Vertex had among the highest paid directors in 2015. One recent article on CEO pay noted that director William D. Young received $1.7 million in compensation from Vertex in 2015. The vast portion of this, as the Globe pointed out, was in the form of stock options he received when joining the board. For the past year Young, who is a member of the compensation committee, received $668,096 in compensation.

It seems to me that if someone is being paid an outrageous sum for what is essentially a part-time job it follows that they might be inclined to support a level of generosity toward the executive the purportedly direct.