Is it time to increase executives salaries?

Is it time to increase executives salaries?

Philip Carrigan

According to one of Japan’s leading venture capital firms, underpaid executives is one reason that more biotechs have not gone public in recent years. It is not due to science, but the fact that Japan’s CEO’s are grossly underpaid. According to this venture capitalist, there needs to be a significant carrot for a candidate to leave the comfort of their present position and dive into the unknown. He explained that comparable positions in the US or EU are often paid twice as much. Are Japan’s executives underpaid?

Our research has shown this to be true. A CEO or CMO in Japan could expect to be earning between 20-30m Japanese yen but in the States or Europe the figure could be easily 40-60m Japanese yen. Is there significant incentive for leading candidates to leave big Pharma for a venture capital company?

For the first time since 2002-2005 when 11 biotechs went public, biotechs are enjoying a rally in the market. The Nikkei (Wednesday, October 24, 2007) reported that “buying is focused just on firms with promising products in the pipeline or with partnership agreements with major drug makers.” Is it time now to address the perceived inequity of executive salaries?

Other venture capitalists have complained to Optia Partners that there is a lack of entrepreneurial spirit in Japan’s biotech market. He believed that there is a talent shortage. He theorized that the comfort afforded to many employees in Japan did not create an environment of risk taking. He explained that the dynamic environment of western society reinforces to employees that they need to be responsible for their careers, families and finances. He stated that unlike Japan the company does not wet nurse or mother the employees. He went on to say that a more open society and robust business environment leads to the top talent being willing to take more risks.
Are Japanese companies a reason for some employees not being more adventurous?

One could conclude that the spirit of entrepreneurship could well be flamed with an increase in executive’s salaries. It would be simplistic to surmise that it is only salaries or company culture are the only factors in why there have not been more biotechs going public in recent times. However, according to the venture capitalist it is a significant contributor.

It may be the case of the chicken or the egg when it comes to entrepreneurial spirit, biotechs and salaries. Would a significant increase in salaries increase the talent pool? Is the market paying what they think the talent is worth? Are Japanese companies to blame?

We would welcome your comments at:

http://www.optiapartners.com/en/lifesciences/life_blog.html