Eli Lilly ($LLY) has once again put its payroll in the deep freeze. For the third year in
a row, the U.S.-based drugmaker says most employees won't see salary increases
because of patent-cliff losses, The Wall Street Journal reports. And
Lilly is cutting cash bonuses, too.
Lilly staffers might have seen
this coming. Early this year, CEO John Lechleiter said 2014 would be the most financially challenging yet. Still suffering
from the loss of Zyprexa's patent in late 2011, Lilly now faces generic
competition for its top-selling drug, Cymbalta. Its attempts to fill those sales gaps have been less than successful,
with several potential drugs now in the discard pile.
Most recently, Lilly and
partner Boehringer lost out at the FDA with their
new diabetes drug empagliflozin; the agency refused to approve the drug because
of manufacturing shortfalls.
If it's any consolation, the
pay freeze affects top executives as well as the rank-and-file. "Most
employees, including executive officers, will not be receiving an increase to
base salary to allow the company to fully invest in late-stage pipeline
assets," the company's newly filed proxy statement says.
The hit to bonuses will vary
person-to-person. The bonus multiple--the amount by which base salary is
multiplied to determine the amount of cash incentive pay--will be cut by 0.25.
So, if an employee's target bonus was 1.4 times base salary, and that employee
hits all performance targets, the actual incentive pay would actually be 1.15
times base pay.
CEO John Lechleiter has waved
off salary increases 5 years straight. Employees could take great comfort in
the fact that Lechleiter's total compensation for 2013 took a swan dive, down
23% to $11.2 million.
Except for the fact that the
decrease comes entirely from a new approach to calculating changes in the value
of executive pensions. His stock awards actually went up by more than $1
million to $6.75 million, and his incentive pay dropped only slightly, to $2.88
million.
It's more or less the same
story for Lilly's execs across the board, with any decline in pay deriving from
pension-value changes rather than declines in stock awards, incentive pay or
salary. CFO Derica Rice, for instance, saw his total compensation decline to
$5.18 million from $6.94 million, but his salary went up slightly, his stock
awards stayed the same, and incentive pay dropped by only $14,000 or so. For
2012, his pension value grew by $1.77 million; for 2013, that growth was zero.
Meanwhile, Lilly has been
cutting jobs and otherwise retrenching to weather its latest patent-cliff blow.
The company said last spring that it would shed about 1,000 salespeople,
including contract reps, to shrink the group that reps not only Cymbalta and
its sister drugs, but also its men's health products.