Health

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Enduring muttering over Pascal Soriot's pay at AstraZeneca is a warning to other CEOs that they will be held accountable for pledges made during a bid defense.

In May 2014, AstraZeneca said it would deliver $45 billion of revenue in 2023. At the time, the British drugmaker was attempting to see off an unsolicited takeover approach from U.S. rival Pfizer. Just after the claim was made, AstraZeneca rejected a 55-pounds-a-share bid, which failed as it was conditional on the U.K. firm's recommendation.

Some shareholders have been asking -- rightly -- why nothing in Soriot's pay is linked directly to hitting that 2023 target. AstraZeneca says this idea has "some attraction," and is considering ways a "more transparent link" could be made between the controversial target and executive pay. It needs to get on with it.

AstraZeneca's rejection was based on the view that 58.85 pounds per share was the level at which to yield to Pfizer. The $45 billion revenue projection was doubtless central to this valuation. The difficulty is that such forecasts are hard for outsiders to assess, let alone police. Projections about cost-savings in a merger are subject to rules set by the U.K. Takeover Panel, to ensure they are credible. But auditing a nine-year sales target is near impossible.

Baking such targets into CEO pay is probably the least bad solution to achieve some accountability. Still, it would be odd to skew the bonus of any CEO directly to a 2023 revenue target. This could distort decision-making against the near-term needs of the business.

AstraZeneca stock tumbled on the day of the bid rejection and has fallen 5 percent since to about 40.60 pounds. Bloomberg's Europe 500 Pharmaceuticals Index is up 7 percent over the same period. Last year Soriot was paid 8.4 million pounds, up from 2014's 3.5 million pound thanks to 4.7 million pounds of long-term incentives vesting. It looks like shareholders have suffered all the pain while Soriot has done okay.

Not Taking the Drugs
Astra's shares have trailed the European sector since rejecting Pfizer

Soriot may not be running AstraZeneca in 2023, and it probably won't be possible to devise a perfect way to hold him to account. But that's no reason to shirk linking part of his pay to what he promised. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net