Moderna faces shareholder backlash on remuneration

May 5, 2023

Moderna, the Cambridge-based biotech firm, has found itself in hot water for executive pay in the lead-up to its annual general meeting.

The controversy centres on the $393m netted by CEO Stéphane Bancel in 2022 through exercising stock options, and the company's decision to raise his salary by 50% to $1.5m and increase his target cash bonus.

Bancel says he will donate the proceeds of stock sales to charity, but this hasn't quelled critics.

The firm's executives and co-founding board members have all made fortunes through the development of the coronavirus vaccine, yet it has received $1.7bn in taxpayer funding and assistance from the National Institute of Health due to the COVID pandemic.

Analysts have criticised its executive pay and governance, and some financial service providers have advised shareholders to vote against the compensation plan at the AGM.

Moderna is one of the standout corporate winners of the pandemic, with the success of its vaccine supercharging its stock price and making billionaires of Bancel and two co-founding board members.

The firm's board is one of just five in the S&P 500 with three directors owning more than $1bn in company stock, according to executive pay research firm, Equilar. Moderna argues that the raises are “reflective of merit,” stating that shareholders have done well and overwhelmingly approved its compensation plan last year.

In 2021, Moderna brought in revenue of $18.5bn, 300 times more than it generated just two years earlier. Its financial success has made it a target of lawmakers, with Senator Bernie Sanders blasting the company last month for plans to raise vaccine prices when it shifts to commercial distribution.

Financial success has also made Moderna a target of criticism for using taxpayer funding.

Experts say that executives who strike it rich can present a conundrum for boards who want to retain and motivate them. Moderna's board has sweetened the pay packages for senior executives like Bancel in the wake of the company's success.

A company spokesperson said board members are mostly paid in stock options to align them with shareholders. However, such stock options have no formal performance conditions attached.

Moreover, the company's Remuneration Committee has made adjustments to financial metrics under the bonus plan's scorecard. The adjustment came in response to the cancellation of orders by COVAX, leading to a decrease in performance for product sales and operating income metrics.

The committee argued that the cancellation of orders by a significant customer for reasons outside of the company's control meant an adjustment was appropriate, thus increasing the payout. Shareholders are typically opposed to amendments to performance targets, especially when the amendments lead to an increased payout.

In response to the criticism, Moderna has defended its executive pay policies, stating that they are in line with industry standards and reflect the company's performance.

The company has also emphasized its commitment to transparency and has pledged to engage with shareholders to address their concerns.

The outcome of the upcoming AGM remains to be seen, but it is clear that the controversy surrounding Moderna's CEO's pay package has sparked a broader debate about executive pay and corporate governance.

As investors and shareholders become more vocal in their demands for greater transparency and accountability, companies will need to adapt their pay policies to reflect these changing expectations.