An overview of Nordic life science executive reward practices

1. 2018 Scandinavian Life Science
Reward and Governance Summary
March 2018

2. 2018 Nordic Life Sciences 2
Peer group selection must reflect stage of development and therapeutic
area and avoid pay inflation
The biotechnology sector, despite cooling off in
2016/17, is displaying increased optimism with higher
volumes of IPOs and financings in 2018
Global IPO’s by therapeutic category 2010- 2017
Total 2010 2011 2012 2013 2014 2015 2016 2017
Oncology 1 3 3 14 17 17 8 8
Rare Diseases – – 3 5 13 12 3 4
CNS 2 2 1 1 11 12 1 2
Gene Therapy – 1 – 1 4 6 7 2
Metabolic 2 – – 3 6 4 3 –
Antibiotics 2 – 2 1 3 3 2 1
Regenerative Medicine 1 – – 2 3 1 3 –
Other 5 3 2 11 25 12 9 5
Total 13 9 11 38 82 67 36 22
SelectedPeers
Primary Therapeutic
Area
Furthest clinical
stage
Pipeline Headcount Revenue Mkt Cap
(€)
Antibodies Market 882 199.4 1,707
Oncology/Infectious
Diseases
Market II, I 250 48.2 789
Immuno-Oncology I I, PC 95 65.5 894
Oncology II II, I, PC 82 0.0 265
Immunotherapy III II, PC 113 0.2 1,463
Various II I 1,017 127.7 597
Novel Medicines III 479 60.6 2,267
Oncology Market M, III, II, I 202 152.4 8,674
Currently 58 public biotechs listed
across the Nordic exchanges
6 IPOs in Stockholm in 2017
53% of Nordic IPOs are currently trading above IPO
price versus 32% in US and 46% in the UK
35% of executives' remuneration is equity based for
Nordic biotechs
55% of the reward package for European NASDAQ
listed or US biotechs is equity based
Annual equity usage is typically 1% compared to 2%
among other European life sciences companies
70% of Nordic biotechs use options or warrants at
executive level

3. 2018 Nordic Life Sciences 3
Remuneration Committee Concerns
Issue Deloitte Observations
Disclosure of
performance
targets under
incentive schemes
• A call for ex ante disclosure of the detailed performance measures and
targets was a consistent theme among proxy advisers over 2017
• Companies with ex ante disclosure of long-term incentive targets are more
likely to receive positive support when increasing the incentive opportunity
under these plans
Disclosure of
individual
management
remuneration
• A wide range of practice is noted in disclosures, ranging from full tabular
disclosure of remuneration to the minimum requirement under local
legislation
• Companies continue to review their disclosure practices, with a view to
requirements under the Shareholder Rights Directive
Discretion
• Any proposals to allow for discretion in determining incentive award levels
are generally met with strong pushback
• This is not the case, however, where proposals are supported by detailed
disclosure of performance targets or the circumstances in which discretion
may be applied
Remuneration Trends
• Peer group selection continues to
be a focus area
• Options/warrants continue to be
the dominant equity vehicle in the
sector
• Performance equity plans growing
in prevalence in Europe plus less so
in the Nordic region
Life science sector
drivers
Assessment of existing
remuneration approach
Identify risks and review
remuneration strategy
Strategy, stage of development
and focus
Key shareholder views and
international trends
Local Governance regime
Local compensation trends and
tax/legal environment
The following reflects our experience over 2017/2018
Impending legislation
• The Shareholder Rights Directive
will impact disclosure of executive
compensation in all Member states
• Companies are looking at current
disclosures to assess its ability to
meet the requirements
Location Impact
• We continue to see large
variations in incentive practices
between European life science
companies listed on a European
exchange vs the NASDAQ
• This is especially evident in equity
practices, levels, and Director
compensation
• US versus European governance
regime ‘clashes’ require careful
management
In light of the impending Shareholder Rights Directive legislation as well as changes to local
corporate governance codes (e.g. the recent Danish Code revision), reward structure and
governance is high on Remuneration Committee agendas. The table below summarises the
key themes emerging across the Scandinavian region.
The framework below is a helpful approach to structuring reward related decision making in
light of the changes pending in terms of governance and disclosure.
Key themes from Proxy Advisers and Shareholders
Remuneration committee
process
Key remuneration principles
Disclosure
Remuneration practices
Financial and strategic risk
Legal and governance risk
Reputational risk
Tax risk
• Peer groups
• Variable pay
• STI metrics
• Clawbacks
• LTI metrics
• Discretion

4. 2018 Nordic Life Sciences 4
Remuneration Committee Concerns
 Training on various topics including remuneration and
human capital strategies, EU Shareholders’ Rights
Directive, accounting, valuation, tax and benchmarking
– generally and/or in detail
 “Remuneration Committee Lab”
 Facilitate and discuss needs for achievement and
improvements
 Participate in meetings to discuss evaluation, priorities,
expectations and action plan
 Perform assessments of Remuneration Committee
Effectiveness
Discussions of how the Remuneration
Committee creates value and
operates effectively
An annual documented remuneration
report taking into account legislation,
regulatory requirements, market practice,
and shareholder perspectives
A formal process to determine the
remuneration structure and pay levels for the
most senior executives and for the
entire organisation
Alignment of incentive structures, especially
for the most senior individuals, with the
interests of shareholders, strategy and
business requirements
A strong alignment between levels of pay
and business, personal responsibility and
performance
Implementation of new hard and soft law
requirements into charter with a clear link to
annual work plan, including qualifications,
including the need for training
A documented remuneration policy taking into account legislation,
regulatory requirements, market practice, and shareholder perspectives
 Development and drafting of charter and annual work plan
 Development and drafting of process for how to work in
the Remuneration Committee
 Development of process for the Remuneration
Committee’s oversight of the remuneration and
performance management processes
 Drafting of remuneration policies
 Drafting of annual remuneration reports
Establishment
 Update of charter and annual work plan, both to ensure
compliance and effective processes
 Updating the process for the Remuneration Committee’s
oversight of the remuneration and performance
management processes, and ensuring compliance with it
 Ensure independence between Remuneration Committee
and Management
 Ensure transparent reporting under EU Shareholders’
Rights Directive and in the annual reports
 Ensure appropriate consideration of sector benchmarking,
tax and valuations as well as clear communication
Compliance
Evaluations & Assessments
Training & Labs
Robert Miller
Partner
+44 (0)207 007 9631
robemiller@deloitte.co.uk.co.uk
Martin Faarborg
Partner
+45 21 27 65 58
mfaarborg@deloitte.dk
Contacts
if you would like any further information, please do not hesitate to contact us:
Torbjörn Hagenius
Partner
+46 75 246 31 68
thagenius@deloitte.se
Deloitte Remuneration Committee Advisory
Deloitte
Remuneration
Committee
Advisory

5. This publication has been written in general terms and we recommend that you obtain
professional advice before acting or refraining from action on any of the contents of this
publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or
refraining from action as a result of any material in this publication.
Deloitte LLP is a limited liability partnership registered in England and Wales with
registered number OC303675 and its registered office at 2 New Street Square, London
EC4A 3BZ, United Kingdom.
Deloitte LLP is the United Kingdom affiliate of Deloitte NWE LLP, a member firm of Deloitte
Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"). DTTL and
each of its member firms are legally separate and independent entities. DTTL and Deloitte
NWE LLP do not provide services to clients. Please see www.deloitte.com/about to learn
more about our global network of member firms.
© 2018 Deloitte LLP. All rights reserved.
Designed and produced by The Creative Studio at Deloitte. CSEDC3057