The boss of AstraZeneca could earn £18.5m this year - but he may be underpaid

The drugmaker AstraZeneca (AZ) promised this morning to raise its annual dividend by 7% this year.

The UK’s biggest company said the pledge underlined its confidence in its performance and cash generation and had taken into account other capital allocation priorities as well as previously announced acquisitions and business development.

What is particularly interesting about the announcement, which has sent shares of AZ up by 2%, is its timing.

Because it comes just hours before AZ’s annual general meeting, during which shareholders will vote on whether to raise pay for the company’s chief executive Sir Pascal Soriot.

The vote comes at a time when concerns about the UK’s competitiveness as an international business destination and investment venue are mounting.

The FTSE 100’s performance has lagged that of many of its peers, both in the United States and Europe, more or less since the Brexit vote in 2016.

That poor performance has reflected the poor valuation of many UK-listed companies – resulting in numerous foreign takeovers of UK businesses in recent months and years.

It has also led to a scarcity in the number of companies floating on the London Stock Exchange, most notably the Cambridge-based chip designer ARM Holdings, which last year opted to list in the US instead.

The situation has alarmed the government, which has announced a number of reforms aimed at raising the UK’s attractiveness.

The UK’s investment community shares the government’s anxiety – which is what makes the vote on Sir Pascal’s pay all the more interesting.

Fund managers have traditionally been pretty aggressive in the UK in terms of applying heavy scrutiny to boardroom pay.

But attitudes have started to shift in recent years after a number of chief executives of FTSE 100 multinationals – among them the medical devices group Smith & Nephew and the consumer goods giant Reckitt Benckiser – stepped down to take better-paid jobs in the United States.

Some fund managers have begun to fret that, in a global war for talent, the UK is no longer sufficiently competitive to attract the very best corporate leaders.

That is particularly pertinent in life sciences, an industry in which the UK genuinely punches its weight, but one in which American drug makers pay markedly more than their European rivals.

And Sir Pascal makes a particularly interesting test case because few would dispute that he has been the most outstanding FTSE 100 chief executive of his generation.

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AstraZeneca was on its knees when he became chief executive in 2012. Its big blockbuster drugs were coming off-patent and the City was sceptical that there were new blockbusters in the pipeline to take their place.

With AZ’s share price depressed, following a series of setbacks on the research and development front, US rival Pfizer pounced in 2014 with an offer worth £69.4bn.

With the issue pushed to the top of the political agenda, Sir Pascal first gave an assured performance to MPs before successfully convincing investors to back him by promising to take AZ’s sales to $45bn within a decade.

His confidence in AZ’s prospects also served as a huge morale boost to a depressed workforce.

After seeing off Pfizer, Sir Pascal oversaw the successful launch of a string of blockbusters, particularly in the field of oncology.

The company went on to distinguish itself by teaming up with the University of Oxford to produce a COVID vaccine at cost and – symbolising Sir Pascal’s complete rebuilding of AZ’s R&D operations – building a huge new £1.1bn campus on the outskirts of Cambridge where more than 2,300 scientists are employed.

AZ recently announced it will invest a further £200m in the site to house a further 1,000 scientists.

In short, then, this is a business that does just about everything the UK wants – a creator of high-value-added jobs developing products that improve and prolong people’s lives.

A lot of this would not have happened had it not been for Sir Pascal’s leadership.

It is for that reason that, over the years, he has regularly been linked with jobs elsewhere. These included, in 2017, the Israeli drugmaker Teva.

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AZ, trying to keep its star chief executive, has accordingly raised Sir Pascal’s pay on a number of occasions.

Critics of the latest pay rise include the influential proxy voting agencies Glass Lewis and ISS, who have instigated previous revolts over Sir Pascal’s salary, both of whom argue the new package – which would raise his annual potential maximum long-term performance share award to up to 850% of his salary and take his potential earnings to £18.5m this year – is excessive.

They point out that Sir Pascal is already better paid than the chief executives of other European drugmakers including Roche of Switzerland, Novo Nordisk of Denmark and GlaxoSmithKline of Britain.

Ranged against them are shareholders who argue the true comparison should be with the big US drugmakers.

They note that the likes of David Ricks, the chief executive of Eli Lilly, Richard Gonzalez, the head of Abbvie and Albert Bourla, the boss of Pfizer, are all paid more than Sir Pascal – even though Pfizer, in particular, is a smaller company.

Unusually, some of these shareholders have been speaking out publicly.

Rajiv Jain, the chief investment officer of Florida-based GQG Partners, told the Financial Times this week that Sir Pascal was “massively underpaid”.

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Norges Bank Investment Management, which runs Norway’s sovereign wealth fund and is one of AZ’s biggest 10 shareholders, has also said it will vote in favour of the new package.

Such interventions highlight just how important they regard Sir Pascal to AZ’s future prospects. The proxy agencies, by contrast, have rather less skin in the game because they are simply advisers rather than actual shareholders.

However, given the background, this vote is about more than just one company and one chief executive. This vote has wider ramifications than that. It is about the future competitiveness of the UK’s business and investment environment.

To that end, it may also raise issues about how the wider public regards the importance of business.

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Even if shareholders give the nod to Sir Pascal’s new salary package, Manchester City’s Kevin De Bryne, Liverpool’s Mo Salah and Manchester United’s Casemiro will still be paid more than him.

Most people have no problem with big salaries for footballers.

They accept it is the price to be paid for the Premier League to attract global talent and remain the world’s most exciting football league.

It is odd that the pay of a superstar chief executive, by contrast, raises the hackles of so many.

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