Executive compensation tapered in FY2015 due to the lower value of equity awards and a strong FY2014 comparison, in which average total pay jumped double digits (see IBO 5/15/15).

Presidents and CEOs

For the 17 presidents and CEOs in IBO’s Laboratory Instruments and Products Stock Index (Lab Index), who have served in their respective roles for more than one year (see table, page 3), average total compensation declined 9% to $5.3 million in FY15. Despite the decline in long-term equity compensation value, most top executives recorded higher base salaries and annual cash incentive awards due to stable economic conditions, attained financial measures and revised peer evaluations.

In spite of a lower average long-term equity compensation value in FY15, these stock option and restricted stock unit awards continued to dominate executives’ pay packages. The average long-term incentive—which may fluctuate in size and timing of grants based on executive and company performance, as well as peer evaluation or market trends—fell 18% to $3.1 million in FY15 to account for 60% of total pay. However, helping offset the lesser long-term equity values, average short-term compensation, which includes base salary and annual cash incentives, expanded in FY15. Average base salary advanced 7% to $800,782 to make up 15% of total compensation. Most executives recorded a base salary increase in FY15, with a median raise of 5%. While notable growth was primarily restricted to a handful of executives, the average annual cash incentive award expanded 14% to $1.0 million to account for 19% of total pay. The average “other” compensation, which consisted primarily of changes in pension value, perks and nonqualified deferred payments (deferred compensation that is not deductible from the company’s taxable income) was roughly unchanged to account for the remaining 6%.

Among the executives in this table, including new appointees, three CEOs recorded total pay of more than $10 million, compared to four in the previous year. Once again, Thermo Fisher Scientific President and CEO Mark N. Casper headed the list of top earners in FY15 with total compensation of $16.3 million, a decline of 7%. The moderate drop in pay was attributed to lower long-term equity value, which fell 6% to $11.5 million. In addition, the annual incentive award for Mr. Casper fell 11% to $3.0 million, despite his exceeding both financial and nonfinancial targets. Similar to a number of other executives’ pay, the variance in incentive and equity awards was mostly attributed to superior results achieved in FY14. Nevertheless, Mr. Casper’s base salary increased 5% to $1.4 million, representing the highest salary among the list of executives.

Newly appointed Waters President and CEO Christopher J. O’Connell (see IBO 6/30/15) instantly reached the $10 million mark following certain sign-on incentives and additional equity grants, which were intended to compensate for forfeited assets from leaving his previous employment. Mr. O’Connell, who succeeded Douglas A. Berthiaume effective September 2015, received a signing bonus of $1.7 million in cash and $5.0 million in equity awards. In addition, Mr. O’Connell earned $5.0 million in stock options, as well as a prorated share of his $825,000 base salary and cash incentive awards for time served. His total compensation amounted to $12.2 million. Mr. Berthiaume, who had waived his equity awards for more than 10 years due to significant ownership of shares, remains a nonexecutive employee until the end of 2001.

Becton, Dickinson President and CEO Vincent A. Forlenza rounded out the list of top executives with total compensation of more than $10 million. Mr. Forlenza’s pay increased 7% to $11.7 million, as his equity awards advanced 15% to $9.0 million. His annual incentive awards climbed 19% to $1.7 million as the firm exceeded currency-neutral EPS and revenue targets, as well as free cash flow measures, which were adjusted to include the acquisition of CareFusion.

Following a significant payout of $14.9 million in the previous year due to robust financial achievements, Illumina President and CEO Jay T. Flatley’s total compensation fell below the $10 million level in FY15. Given the decline in annual cash award and equity value, his total pay fell 38% to $9.2 million. However, with a salary increase of 16% to $1.0 million due to strong operational and financial accomplishments in the previous year, Mr. Flatley joined the short list of five executives with base salaries of $1 million or more. In what could be interpreted as a preemptive measure to his announced departure (see IBO 3/15/16), Mr. Flatley exercised and sold a number of options in the last two years. In FY15 and FY14, Mr. Flatley exercised 555,000 and 680,000 options for realized values of $91.8 million and $98.5 million, respectively. Realized value measures the reportable income profit of an option at the date it was exercised and value of vested stock awards on the date of vesting. As such, the total realized value of options exercised and stocks vested for Mr. Flatley in FY15 and FY14 was $127 million and $103 million, respectively.

Another notable decline in compensation was recorded by VWR President and CEO Manuel Brocke-Benz, whose total pay dropped 52% to $2.8 million in FY15. This decline was due to equity grants awarded in the previous year tied to the company’s IPO (see IBO 10/15/14), as well as weak EBITDA results against quantified targets.

In contrast, several top executives experienced higher compensation as a result of improved financial achievements, promotions or increased incentive measures. After failing to meet the minimum revenue growth threshold portion of its incentive plan in FY15, FEI’s compensation committee approved additional equity awards to incentivize future organic revenue growth targets. Although comparable to the stock and option values recorded of executives in that table, actual amounts earned will vary based on future share price and achieved financial measures. Nevertheless, given the increase in equity compensation value in FY15, President and CEO Don R. Kania’s total compensation climbed 51% to $5.2 million.

Bruker President and CEO Frank H. Laukien, PhD, also recorded a significant pay increase in FY15, with total compensation climbing 47% to $3.9 million. This escalation was primarily attributed to a maximum cash incentive award of $1.8 million based on financial and individual performance measures. In addition, his equity award expanded 5% to $1.5 million.

Similar to Waters, Agilent Technologies transitioned to a new president and CEO in 2015 as Michael R. McMullen, former senior vice president (SVP) and president of the Chemical Analysis Group, was promoted (see IBO 3/31/15). Mr. McMullen succeeded William P. Sullivan, who continues to serve as an advisor through October. Given his new role, Mr. McMullen received a 36% salary increase to $950,000 and greater performance-based awards. Mr. McMullen’s total pay jumped 59% to $7.2 million following the promotion.

Executives of Dedicated Business Units

There were a number of executive changes at dedicated instrument- and lab product businesses in FY15, as well as a strong variance in their compensation due to increased incentive awards and equity valuations in the previous year. FY15 total average compensation for the 12 heads of dedicated business units who have served in their respective roles for more than one year (see table, page 6) fell 24% to $2.2 million. As with the list of presidents and CEOs, compensation for executives of dedicated business units lightened as a result of lower long-term equity values and the timing of awards.

The most significant change in equity value and total compensation was for Arthur G. Caputo, Waters executive vice president (EVP) and president of Waters Division, who did not receive any option grants in FY15 due to retirement considerations. He resigned effective February 10 (see IBO 2/15/16) but remains a nonexecutive employee through January 2017. Thus, his total compensation fell 72% to $1.1 million. However, similar to Mr. Flatley, Mr. Caputo was active in exercising his options and vested stocks, which amounted to a realized value of $22.3 million in FY15.

VWR SVP and president of Americas Lab and Distribution Services, Mark T. McLoughlin, equally reported a sharp decline in FY15 total compensation, which contracted 54% to $704,422. This decline was attributed to a one-time options grant in the previous year and lower performance results.

Likewise, compensation for Thermo Fisher Scientific EVP and President Mark P. Stevenson was impacted by the timing of awards in the previous year, which included nearly $4.0 million in bonus payments due to the integration of Life Technologies (see IBO 4/15/13). As such, Mr. Stevenson’s pay fell 44% to $6.7 million.

Mark R. Munch, PhD, president of Bruker Nano Group, recorded the largest pay increase in FY15 among executives of dedicated business units, as he was promoted to EVP of Bruker in July 2015. Given the promotion, in conjunction with a retroactive increase as a result of performance and peer evaluations, Mr. Munch’s base salary increased 23% to $490,000. A significant outperformance of financial goals further elevated Dr. Munch’s cash award, which jumped 170% to $212,983. His total pay advanced 23% to $1.5 million.

Using the same methodology as Bruker, PerkinElmer determined that the base salaries paid to the presidents of Human Health and Environmental Health, James Corbett and Jonathan P. DiVincenzo, respectively, were below the top 25 percentile pay measured against their peers. As a result, Mr. Corbett and Mr. DiVincenzo’s base salaries increased 10% to $440,000 each.