Incentive pay between Pharmaceutical and Biotechnology organizations is fundamentally different, and it should be. Pharmaceutical organizations are typically well-established, mature organizations with at least one product in the market. Biotechnology organizations are smaller, more agile, and looking for the next breakout product. As a result, the culture of each type of organization is radically different — biotechnology firms tend to be more risk-seeking and aggressive in their pursuits, while pharmaceutical organizations are not as aggressive. Mercer's Life Sciences group recently conducted a custom analysis of the application of incentives between US Biotech and Pharmaceutical companies. The data analyzed was taken from the 2021 SIRS Benchmark survey and the 2021 SIRS Executive survey.
Short-term incentives
The 2021 SIRS Life Sciences data below shows that life sciences organizations offer far more short-term incentives (STI) than the general industry in all career streams. The emphasis on STIs indicates a more robust pay-for-performance culture among Life Sciences organizations that matches the fast pace at which companies attempt to get products to market.
The data analysis also clearly shows that Life Sciences STI targets are higher than general industry in the professional and management career streams. The population of Life Sciences - specific roles in the professional career stream, including Discover Biology, Product/Process Research Science, and Clinical Trial Design, have significantly higher STI targets than the general industry. The skills needed to succeed in this industry are scarcer than in other industries. Therefore, organizations within the Life Sciences industry need to pay their employees above the general market.
Meanwhile, in the Management Career Stream, industry-specific roles, such as Clinical Trial Design, Clinical Research Project Management, and Product Regulatory Affairs, are also setting the STI targets above the general industry.
For both professional and management career streams, the Life Sciences STI actual payouts have decreased slightly from 2020 to 2021. The decline in actual STI seemed to occur across a variety of jobs — in both industry-specific roles and cross-industry roles, such as Manufacturing Production, General IT, and Financial Planning & Analysis — as well as across most levels in the professional and management career streams.
This decline suggests that even though some parts of the Life Sciences industry likely weathered the pandemic better than others, parts of the industry may have experienced some slowdowns, with nonessential medical procedures either postponed or canceled.
Long-term incentives
Long-term incentives (LTI) are quite prevalent in Life Sciences organizations. They are a retention tool used in both management and professional roles. In some cases, they extend to junior professional roles where the skill and/or person is critical to the organization's future success. Life Sciences organizations often compete for talent with the technology industry and, therefore, need to remain aware of practices originating in the technology sector that may affect hiring and retention.
Long-term incentives are used far more in Life Sciences than in the general industry. The trend continues to hold when examined on a level-by-level basis across every level of the professional and management career stream. In particular, Life Sciences sales and Engineering & Sciences positions are two job families that hold a high degree of industry-specific specializations. They are areas where the Life Sciences industry offers quite a bit more LTI than the general industry.
Data also indicates that eligibility for Life Sciences organizations in the professional career stream has seen a slight uptick from 2020 to 2021, while the management career stream has decreased. This increase is driven primarily by eligibility increases in the Sales and Engineering & Sciences roles.
Within the Sales & Marketing job family, LTI eligibility has gone up from 72% in 2020 to 74% in 2021; Engineering & Sciences has gone up even more, from 66% in 2020 to 74% in 2021.
Life Sciences include pharmaceuticals, biotechnology, medical device, contract outsourcing, agricultural sciences, and animal health. Pharmaceuticals and biotechnology make up the majority of the survey, with about 60%.
Within these two largest groups, there is a stark difference in approach to LTI use in executive roles in the Pharmaceutical (350% of base) and Biotechnology industries (646% of base). Biotechnology organizations leverage more through LTI use at all executive levels. While there are some differences in the use of STIs in Pharmaceutical and Biotechnology organizations, the differences are not consistent. On some levels, the Pharmaceutical industry had a higher STI, while in others, it was Biotechnology.
| |
Pharmaceutical industry |
Biotechnology Industry |
| Level |
LTI % of base (average) |
STI % of base (average) |
LTI % of base (average) |
STI % of base (average) |
| E5 |
350% |
101% |
646% |
114% |
| E4 |
80% |
59% |
262% |
47% |
| E3 |
71% |
44% |
93% |
38% |
| E2 |
67% |
34% |
107% |
36% |
| E1 |
45% |
29% |
83% |
31% |
Short-term incentive eligibility was consistent in both Pharmaceutical and Biotechnology organizations, with 95% of both Biotechnology and Pharmaceutical executives in the survey eligible for STIs. Of the 4,829 executives reported as being in Biotechnology in the survey, 4,620 (or 96%) were eligible for LTIs. The Pharmaceutical executives reported that 93% (or 14,586 out of 15,656) were eligible for LTIs.
Survey participants offered multiple types of LTI, but the prevalence shows that restricted share units are the predominant vehicle in both Biotechnology and Pharmaceutical organizations. Interestingly, there is an absence of long-term cash as a vehicle in biotechnology organizations.
Incentive practices at other levels of Pharmaceutical and Biotechnology organizations share similar relationships with STI and LTI targets as a percentage of base. We also see similarities in the number of people receiving STIs. When we look at the percentages of people receiving LTIs, there is a marked difference, especially at the individual contributor levels, within the organizations. For example, at the expert professional level (Mercer level P5), 91% of employees in biotechnology firms received an LTI versus 60% of Pharmaceutical employees. At the senior professional level (Mercer level P3), 59% of Biotechnology employees received a LTI versus just 20% of Pharmaceutical employees. Despite some pharmaceutical eligibility at lower levels of para-professionals, typically hourly paid employees, there were no receivers. However, in Biotechnology, 1 in 5 experienced para-professionals (Mercer level S2) received an LTI.
In conclusion, the data confirms a fundamental difference in the approach and use of LTIs between Pharmaceutical and Biotechnology organizations. Every organization must understand the drivers and tools needed to effectively drive the behaviors and outcomes for success.
Get the full data by downloading the Mercer SIRS Benchmark survey or SIRS Executive survey along with many other Life Science resources. Or contact us at surveys@mercer.com or 855-286-5302 today!