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In the past three years, the life sciences industry felt an unprecedented peak, a major crash, and the lingering effects of a global pandemic. While conditions show early signs of stabilizing, most companies are unsure of how to restore the value of equity while keeping employees and shareholders happy.
Fortunately, we hosted a webinar with one of the leading total rewards experts in life sciences - Rob Surdel, Founder and Managing Director of Alpine Rewards.
Rob has generously shared his insights about vital angles, strategies, and trends with our own Charlie Franklin.
The insights sparked a discussion. And the discussion inspired important questions that began revealing the puzzle of how comp teams within life sciences should approach equity-based compensation in 2024.
Key topics
- How market forces have impacted the way life science companies approach compensation
- Challenges in restoring the perceived value of equity-based compensation in life sciences
- Issues revolving around equal compensation - from an equity-compensation perspective
- Why comp teams need real-time data that reveals the latest market shifts in 2024 and beyond
- When a company should (and shouldn’t) focus too much on what their competitors are doing
From the “Wild West” to being stuck
Expansion. Instability. Market shocks. Caution.
This is how one might describe what happened to businesses in pharma and biotech over the past couple of years.
Or, as we’ve heard on the webinar: “Nothing short of a rollercoaster.”
Interestingly, the life sciences market was fairly insulated from the shock that COVID-19 brought. Rob explained that it was mainly due to all the investment in vaccines and the success that many companies experienced.
Rob revealed that 2020 and 2021 were the times when companies had different ways to access funds. “The money was cheap and there were growth opportunities.”
Everybody strived to hire the best talent available and didn’t spare in their pursuit: “It was a sort of arms race. But - because there was a spike in demand, and you only had so many people in the market, we started getting into some crazy decision-making” - Rob stated.
“It was the Wild, Wild West out there.”
2023’s life science buzzword: “right-sizing”
It came as no surprise that the companies were stuck once the market shifted towards the negative side.
Many companies saw a shrinking cash runway which quickly transformed into right-sizing. “This wreaked havoc with companies’ equity programs because they had limited resources and needed to use them in the most efficient way” - Rob said.
“The problem was that companies treated a boom cycle as it was a normal business cycle.”
And it needed to stop.
It boils down to lifecycle position
“It depends on where the company is in its lifecycle” - said Rob. “Some companies are sitting on billions of dollars of cash, and they are just waiting. A lot of companies are just sitting on the sidelines, waiting for good terms to make a deal.”
Rob reflected on how easy it was to raise tens of thousands or even hundreds of millions of dollars just a couple of years ago - and how it eventually created massive dilution for many organizations.
“Not only is it difficult for investors - but also for the employees” - Rob pointed out.
Equity is what ties financial and talent markets
Biotech companies’ growth largely depends on being able to attract some of the best minds in the world.
Attracting those minds is not an easy task. Especially in the volatile conditions set by the recent years’ developments.
Rob and Charlie agreed that the companies need to assess the current reserves, the potential future funding, as well as the intended uses of the reserves to attract the needed talent.
Companies need to establish where they want to differentiate - but also why - in their pursuit of the best talent available on the market today.
Critical and less critical impact areas for comp
Rob explained that it often comes down to answering the simple question: “Where do we have the biggest bang for the buck?”
The challenge deepens - as Rob says - when people disagree on the value of equity.
However, he feels that the situation has shifted a little bit:
“It’s gotten back to a place where it’s more sustainable. There’s more cost-consciousness orientation around.”
And, naturally, the question at hand is how businesses should get back to building the fundamentals in a sustainable way - rather than in an opportunistic way.
Comp teams can make a huge impact in 2024
The conversations naturally shifted to an interesting challenge: What if a potential employee views equity-based compensation as less valuable or doesn’t believe in its future growth potential?
“From my perspective”, Rob started, “equity is a totally gray area.”
He suggested that some companies might offer a choice to potential employees. They can let people choose a high cash package over a high equity package.
Charlie added that communication and pay transparency can be a powerful weapon for comp teams.
“They can help employees understand why differences exist” - he said, wanting to point out that we’re moving in the direction of increased visibility and transparency.
Offers-based data VS internal strategies
Rob pointed out how valuable it is to have access to relevant, accurate, and up-to-date market data.
“But - you also need to take a step back and reflect on your company’s strategy and situation. How does this relate or doesn’t relate to what the market is doing?” - said Rob before making a key point:
“Just because we’re doing something different doesn’t mean that it’s wrong. In some cases, it might even be desirable.”
Charlie then revealed the results of a recent survey that the Compa team has conducted - showcasing just how real-time market data can influence important decisions.
The future for comp looks bright(er)
At the very end of our webinar, Charlie asked Rob about his take on how the market will shift in the near future.
Rob answered by sharing some of the reasons why he believes we’re not that far from “ultimately getting back to where we were in the pre-2020 era” before making a bold statement:
“The change is inevitable.”
Watch (and rewatch) the full webinar with Charlie and Rob here.
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