The company continued to grow during Sharer’s early tenure, and more recently, the company has boasted greater earnings per share. But by 2006, the growth that once distinguished Amgen had begun to taper off.
In 2008, Forbes magazine named him among among the country’s most overpaid bosses because the company’s returns had dipped 4 percent annually over six years while he’d earned an average of $12.3 million.
The lack of enthusiasm was even more noticeable among the people who know most about Amgen — insiders. Companies are required to report when their officials sell stock. Since 2002, the ratio of share sales to purchases has been 12 to 1, according to Bloomberg data reviewed last fall by Christopher.
Under peer benchmarking, however, even when shareholders lose, executives can win.
Bias can creep into the process in several ways. At Amgen, it began with the choosing of “peers.”
Amgen selected 11 companies in the biotech/pharmaceutical field, which seems natural enough. But most of the companies on the list are far larger than Amgen. Amgen’s revenue in 2010 was $15 billion; the median revenue of its peer companies was $40 billion, according to Equilar.
The practice of choosing peers that boost pay is common. Studies by Faulkender, Bizjak and ISS Corporate Services have shown that when choosing “peers” for pay-setting purposes, companies tend to choose larger firms or firms with more highly paid chief executives.
Maybe even more significantly, however, the Amgen compensation committee also decided that Sharer, despite being at a smaller company, should earn stock compensation at the 75th percentile of peers.
This is critical because stock compensation tends to be the largest component of executive pay.
The company has said that stock compensation serves as a good incentive; the more stock he owns, the more reason he has to try to boost the company’s value.
Moreover, the company says, to receive the $21 million in reported compensation, Sharer must reach an array of goals with the company, so much of his pay is “at risk.”
But how much is his pay really in doubt? Most of the stock compensation Sharer is slated to receive as a long-term incentive is contingent not on the company’s financial performance but simply on whether Sharer remains at the company, ISS Proxy Advisory Services has pointed out. Moreover, the reported compensation figure of $21 million is based on the company’s projections of “probable” financial outcomes.
As a result, Sharer has earned raises while shareholders have lost money. In 2010, Amgen’s shareholder return was minus 3 percent. In 2009, shareholder return was minus 2 percent.
In both years, Sharer received significant pay increases, even though Amgen’s “peer” companies made gains for shareholders, according to Equilar.
“He’s basically done nothing for the company,” Silverman said. “And he still gets raises.”
Sharer has tried to cut costs, however, pushing out workers at plants around the country: at its headquarters in Thousand Oaks, in West Greenwich, R.I., and Longmont, Colo.
Outside the Longmont plant recently, where more than 90 workers were laid off in June, a pair of contract workers said they’d been hired to replace dismissed workers.
“We’re cheaper,” one explained. “Honestly, I’m just glad to have a job.”
Former employees were reluctant to talk about Amgen because, they said, their severance pay could be affected. But some were “furious” about what Sharer was earning.
“Obviously,” said one woman who used to work at the Thousand Oaks facility, “only some people matter.”
Sharer, meanwhile, has done well. He owns at least three homes, according to property records: a $2 million home in Los Angeles, a $6 million spread in Vail, Colo., and a $5 million place on Nantucket.
Moreover, the effects of his raises are not limited to Amgen.
In fact, because of peer benchmarking, raises at one company have ripple effects across corporate America: Thirty-seven other companies name Amgen as a “peer,” including Wal-Mart, MasterCard and Time-Warner, as well as other drug companies, according to Equilar.
Next year, at those companies that use Amgen as a peer, Sharer’s new compensation package will be used as a benchmark, propelling executive pay upward.
Staff researcher Lucy Shackelford contributed to this report.
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