The Advisors' Blog

If you work with life science companies – especially those in the development stage – you know that executive compensation arrangements look quite different from what you see in the S&P 500. Two recent articles from Aon (available for download) give helpful info about trends.

One memo looks at usage of options vs. RSUs. The other covers special performance-based awards – including metrics, performance periods, participation, and payout curves. Here are a few observations about performance metrics:

● On average, companies use 1.4 metrics.

● It is common for development and early-stage commercial companies to use milestone-based goals in special LTI plans, often those which are tied to a successful data read-out. As these goals are generally binary, the milestone is either achieved or not.

● Late development stage and early-stage commercial companies generally use hurdle-based plans tied to achievement of specific stock prices or financial goal (typically revenue) in special LTI plans. The underlying goal is commonly aligned to a value inflection point.

● Mature commercial companies tend to have better visibility into their financial performance, which is why they use a PSU design tied to their LRP.

– Liz Dunshee