Moderna emerged from the pandemic as a standout corporate winner, as its vaccine supercharged its stock price and made billionaires of Bancel and two co-founding board members. The firm’s windfall profits have drawn criticism, particularly because it used $1.7 billion in taxpayer funding and assistance from the National Institutes of Health to develop its vaccine. Now, analysts are finding fault with its executive pay and governance, with one influential firm advising shareholders to vote against the company’s compensation plan at its annual meeting on May 3.
Moderna defends the raises for Bancel and others as “reflective of merit,” pointing out that shareholders have done well and overwhelmingly approved its compensation plan last year. The pay is “appropriate in light of the increased scope of increasingly global responsibility for Moderna’s executives,” the company said.
Even by the roller coaster standards of the biotechnology world, Moderna’s rise has few parallels in the annals of modern American business. The company brought in revenue of $18.5 billion in 2021, 300 times more than it generated just two years earlier. Moderna’s board is one of just five in the S&P 500 with three directors owning more than $1 billion in company stock, along with household names like Google-parent Alphabet, Berkshire Hathaway and Estée Lauder, according to Equilar, a research firm specializing in executive pay.
Moderna’s prominence has come with certain costs, and it has spent up to $1 million a year on security for Bancel due to what it calls the “heightened threat environment in connection with production of our COVID-19 vaccine.” Financial success has also made Moderna a target of lawmakers like Sen. Bernie Sanders (I-Vt.), who blasted the company at a hearing last month for its plans to raise vaccine prices when it shifts to commercial distribution.
“In the pharmaceutical industry today, we are looking at an unprecedented level of corporate greed, and that is certainly true with Moderna,” he said. Yet Sanders still credited Moderna with helping blunt the toll of the coronavirus and save lives.
Bancel said he was driven by Moderna’s mission and took a pay cut to join the fledgling firm in 2011. “I took a risk on an untested medical technology when the rate of failure in the pharmaceutical industry is around 90%,” he said in a written testimony.
Before its pioneering messenger RNA technology hit pay dirt, Moderna rewarded its executives and co-founders with generous helpings of stock. In 2013, the company gave Bancel more than 4.5 million stock options that he could exercise for 99 cents each. By 2021, the company estimated these options alone were worth more than $1 billion.
“Moderna has provided my family with financial security the likes of which I never imagined or, frankly, sought,” Bancel wrote in May 2022, explaining his plan to exercise the 2013 stock options before they expire this year. He said in a blog post last month that he donated the after-tax proceeds of his stock sales last year – $176 million – to charity, along with another $76 million this year.
Experts say that executives who strike it big can present a conundrum for boards who want to retain and motivate them. “How much is enough and how much is too much?” said David Larcker, director of Stanford University’s Corporate Governance Research Initiative.
In the wake of its breakout success, Moderna’s board has sweetened the pay packages for senior executives like Bancel, raising his target stock compensation by 67 percent in 2021. Board members’ own pay ranks among the top 25 percent of directors at America’s 500 largest publicly traded companies, according to Equilar data from 2021. Last year, Moderna board members received pay valued at an average of $475,000 – well above their counterparts at drug giants Pfizer, Bristol-Myers Squibb and Merck that are more than twice as big as Moderna.
A company spokesperson said board members are mostly paid in stock options to align them with shareholders.
Moderna’s governance is coming under criticism from firms that advise shareholders on how to cast their votes at annual meetings. Institutional Shareholder Services for the last two years has recommended voting against directors to protest practices that, it argues, make the company less responsive to shareholders. Moderna says that some practices at issue, such as staggering terms of its board members, are a defense against a hostile takeover.
Glass Lewis, the other major shareholder advisory firm, criticizes Moderna for boosting CEO pay without tying it to performance goals and is recommending shareholders rebuke the company for its pay plan.
Most of Bancel’s pay is tied up in stock options that he earns over time – and that only have value if the stock price goes up.
Brian Cadman, a professor of accounting at the University of Utah, said giving stock options to executives without a requirement to meet performance goals – such as profits or shareholder returns – is increasingly uncommon. “I would even say it’s somewhat archaic,” he said. “It seems to me they’re granting equity more with the idea of trying to retain the CEO.”
Moderna emphasizes that Bancel and other senior executives only reap rewards if shareholders do. In 2022, when Moderna’s stock fell 29 percent, Bancel’s actual pay equated to a loss – on paper – of $306.2 million, according to a March securities filing. The prior year, when the stock rose 143 percent, his package was actually worth $793 million, according to the company’s estimates.
Moderna’s commercial success, however, makes pay in the form of stock options less risky than it once was, according to some experts. “The chance that the CEO may not make a considerable amount of money out of them is very small,” said Paolo Volpin, a finance professor at Drexel University.
One unusual feature of Moderna’s pay was called out by both ISS and Glass Lewis as cause for concern: changing performance metrics to boost cash bonuses for executives.
Moderna had committed to sell 750 million vaccine doses for middle and low-income countries, but the buyer, Gavi, later declined to take the orders, citing a lack of demand and storage infrastructure. That meant the company didn’t receive $2.8 billion that it had expected, denting sales that make up the biggest metric for calculating bonuses.
The board determined that the cancellation was outside the company’s control, and added the sales it had expected, but didn’t achieve, to its formula for determining bonuses. That resulted in a slightly higher payout, with Bancel receiving about $225,000 more than he otherwise would. Moderna said that formula determines the bonus pool for all employees.
ISS said the adjustment was grounds for “some concern” but concluded that pay was reasonably aligned with performance. Glass Lewis acknowledged the amounts were relatively minor but wrote that tinkering with metrics can “undermine the integrity of the pay program.”
In a rebuttal, Moderna wrote that the pay practices Glass Lewis rates as “poor” received a “fair” grade by the firm the previous year, “despite the fact that no significant changes have been made.” As for the adjustment to sales, Moderna wrote that the board’s compensation committee determined the company “could not independently create market demand for vaccines.”
Cate Brown contributed to this report.
