The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

October 19, 2023

Biotech No Longer “All In” on Options

Pay Governance recently analyzed over 400 biotech companies with greater than $50 million in market cap to better understand how compensation practices in these companies have shifted over the last three to five years. In this report on its findings, the team discusses how market volatility has impacted biotech companies’ equity compensation strategies, noting that “in this environment, significantly underwater options have put pressure on many companies’ equity incentive programs, requiring many to consider different approaches.” At a high level, they found that many biotech companies have adapted their strategies as follows:

– Increased use of restricted stock and restricted stock units (RSUs)
– Increased rate of aggregate annual equity usage (“burn rate”)
– Increased level of automatic equity reserve refresh rates and reliance on such refreshes (“evergreen provisions”)
– Decreased levels of available shares authorized for grant to employees (“share pool” or “equity reserves”)
– Increased levels of outstanding employee ownership (dilution)

After reviewing the trend data, the report concludes that the increased use of RSUs and the higher burn rates are here to stay — albeit at lower levels since both likely peaked in 2022 — with options continuing to be the preferred equity award type.

– Meredith Ervine