Six Reasons Why Giving Scientists Big Bonuses Won’t Fix Pharma R&D

Xconomy National — 

Scientists in the biotech and pharmaceutical industry are an underappreciated bunch. They make decent salaries, but nowhere near the big bucks that go to their bosses. Even when an industry scientist discovers a new drug that helps people and makes billions, he or she almost never gets publicly recognized. They live mostly anonymous middle class lives, just trying to pay the mortgage and put the kids through college.

So when news surfaced a few weeks ago that GlaxoSmithKline plans to reward its scientists with investment-banker style bonuses—potentially worth up to $15 million—for discovering blockbuster drugs, my first reaction was that this sounds great. It has never felt right to me that people in industry who often make the biggest contributions don’t reap the rewards. It struck me as one modest step in the right direction toward fairness in a world where economic inequality keeps widening.

But after talking to a few scientists the past week, even a few who would stand to gain a lot from this new kind of bonus system, I can only conclude one thing: Well-intended as it may be, it’s just another bad idea to fix the pharmaceutical R&D crisis.

What we’re really discussing, of course, is way more than an employee bonus system. Even with all kinds of new technologies and deeper understanding of biology, the world’s pharma companies are in a desperate situation. They have boosted annual spending on R&D to $135 billion a year, and despite that massive investment, the global pharma industry is introducing fewer new drugs now than it did a decade ago, according to a report by the International Federation of Pharmaceutical Manufacturers and Associations.

Something big has clearly got to change. Pharma companies are trying all kinds of experiments with academic partnerships, biotech partnerships, internal reorganizations, open-source data sharing initiatives, venture capital investments, and more. Big bonuses for scientific achievement are just one other idea to add to the mix.

Lots of companies have incentive programs to reward employees for a job well done, but GSK’s plan appears to dwarf the others. The new plan replaces an older one that offered smaller rewards for scientists whose projects hit modest goals of progress in development, like introducing a drug candidate into clinical trials.

“These programs provide the opportunity to recognize individuals whose extra efforts or leadership enable GSK R&D to achieve its strategic goals, drive performance and ways of working,” said Melinda Stubbee, a GlaxoSmithKline spokeswoman, in an email. “Employees at all levels and phases of R&D are eligible.”

Not surprisingly, when this plan was reported, it spurred lots of chatter. John LaMattina, the former president of R&D at Pfizer, wrote a critical review on Forbes, arguing that it would be very tricky for companies to fairly hand out bonuses in the proper proportions. David Shaywitz and Derek Lowe also raised doubts that such incentives would work.

I wanted to hear from a few more people in industry who either would have benefited from such a megabucks incentive plan in the past, or stand to benefit from one today. After the series of conversations with these scientists, I came away convinced that 8-figure bonuses won’t solve the R&D productivity problem, and might even make it worse. Here are six reasons why:

Success has too many fathers: Drug development is a complex team sport, not an individual sport like golf or tennis. When a drug succeeds, it’s usually because of a complex tapestry of biology, chemistry, preclinical development, clinical development, regulatory affairs, manufacturing, marketing, and so on. No one person, or even one department in a company, can put out a successful drug by itself. So when you have a success, you often have many people who believe, with varying degrees of justification, that their contribution was integral. You could end up with dozens, or hundreds, of people raising their hands, saying they deserve a piece of the bonus pool. People who do a good job, and think they deserve a bonus, are almost surely going to be snubbed, and even more will feel snubbed. “If you neglect certain people, or recognize people less worthy in the eyes of their peers, it creates animosity,” said Peppi Prasit, the founder of San Diego-based Inception Sciences and a former medicinal chemist at Merck.

It’s too hard to fairly divvy up the loot: Even if a company decided to set aside, say, $50 million in its bonus pool for creating a hit drug, and spread it among dozens, or hundreds of people, there’s the issue of how to hand out the loot. If you let C-level executives do it, then the process becomes politicized, with bonus candidates lobbying the higher-ups, and the higher-ups giving out bonuses to those who they perceive to have done the most work—not necessarily those who did the most important work. Even if you decide to leave out everyone at the VP level and above, and let the foot soldiers sort it out themselves, you can expect lots of knock-down, drag-out arguments over who did what, and what was most important. Even if you have a process with a fixed scale that gives the biggest piece of the bonus to a “major contributor” and lower-tier bonuses for people who made lesser contributions, you still have to rank people’s work compared with their peers. Look at how that worked for Microsoft over the past decade.

“Who makes the decision on who gets the bonuses, and how do you quantify that level of contribution?” said Steve Richards, a chemist at Global Blood Therapeutics, a South San Francisco-based startup. “It’s very difficult. There will always be people who won’t think the process is fair.”

Cooperation would go out the window: Some online commenters have suggested that when big bucks enter the picture, you can expect pharmaceutical scientists to become more secretive, less collaborative. They’d do that in the hopes of advancing their project far enough along in development so that it’s clear they will be seen as the biggest individual contributor when it comes time to dole out the bonuses. People would be fearful of that self-promoter down the hall, who just might try to hog all the credit for the project’s success for him or herself. Craig Smith, a molecular biologist formerly with Immunex who co-discovered etanercept (Enbrel), told me he rejects this notion. He says the opposite will be true—scientists will be more inclined to share their data with others in R&D who have complementary skills, because they’ll be more motivated to see their project go all the way to the market.

Sorry, Craig, but I’ve heard too many stories of nasty hardball politics in drug discovery, when people are arguing about whose name appears on a scientific paper. If $10 million in the future is at stake, I’m willing to bet that a lot of people will keep their precious data to themselves, and certainly not share it with that guy they hate down the hall, or even just other smart people who might be inclined to grab the credit.

Where are these people anyway? It takes 10 to 15 years for a drug to make it all the way from discovery through development to the market—which is longer than most people stay at any one company anymore. That means the person who made the most important contribution probably works for someone else by the time bonuses come out. If you’re Pfizer, do you want to give $10 million to a guy or gal who works now at Merck? Do you even know where they live anymore? “Is a company going to write a person a check 10 years after they leave? That’s strange,” Richards said.

Scientists aren’t motivated completely by money: The idea, advanced often by business schools, that employees are creatures motivated almost entirely by money is off base. These people think if you offer financial rewards for the behaviors you want, your people will do what you want, just like a mouse runs through a maze for a piece of cheese. Scientists are people who need to pay the rent like everybody else, so money matters to them, sure. But they also crave fair and proper recognition for their work, maybe even more than the money. They want the respect of their peers. They want the bean counters to support them when they ask for a fancy new gene sequencing instrument, or a high performance liquid chromatography machine. They want a stimulating work environment with smart peers. They want to know their work matters, that they are working hard for more than just their own financial ends. “A lot of scientists are driven, and it’s almost like they want a label on their forehead that says, ‘I discovered a new drug.’ That’s more important than the money. If they get money, it’s icing on the cake,” Prasit says.

That said, some will do twisted things to pursue the big bucks: Sometimes people can get a little too fixated on dollar signs, and do reckless things, if we’ve learned anything from how folks on Wall Street behaved in the financial crisis. The same kinds of bad behavior could happen here, if people become a little too enamored with a molecule, looking only at its potential. They might turn a blind eye to inconvenient data from that rat test last month that said it might cause heart attacks. Or maybe some will feel the pressure to fudge data to make a drug look better than it is. “I can see situations where people would say ‘we’re moving something crappy forward because it’s the only thing we have. Nobody thinks it has a chance, but we’re doing it anyway,” said Stewart Lyman, a biotech consultant in Seattle. That sounds like a good way to waste more time and money on drug candidates that are doomed to fail.

If pharma wants to motivate employees and improve R&D productivity over the long term, then I’ve got to believe there are better ways. Genentech did a pretty good job of innovating by seeking to hire the best scientists it could find, paying them well, giving the scientists a lot of support, and the freedom to pursue their own creative projects during “20 percent” time. Then again, former CEO Art Levinson also saw fit to recognize former Genentech scientist Napoleone Ferrara with an inaugural $3 million “Breakthrough Prize in Life Sciences” years after his pioneering work on bevacizumab (Avastin). If any readers out there have better ideas on how to revitalize pharma R&D, I’d love to hear them in the comment section below.

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13 responses to “Six Reasons Why Giving Scientists Big Bonuses Won’t Fix Pharma R&D”

  1. Ayitey says:

    So make milestone payments. IND, phase1 etc. Put up a pool of money for each milestone, and decide effort percentages upfront. If we have software that can land the rover on Mars, this should be easier. Money motivates, even though it is not all that motivates.

  2. bigredbruce says:

    I still think structures that emphasize more decentralization and entrepreneurship have better chance of being successful that big bonues. Bruce Booth’s article last week in his LIfe Sci VC blog had some good points. I liked ideas of smaller R&D “biotechs” with own P/L, getting marketing and other depts out of way and reconfiguring boards with more science. Derek Lowe also commented on this. Their thoughts are worth looking at.

  3. Johnny T Stine says:

    Bonuses of $15M?!! I would suggest these people stop whining and put their idea where their mouth is…..jump into the shark tank and prove that they can produce a winning drug. That’s right – “grow a pair” (like my VC friends are accustomed to saying) and prove it. Ideas are a dime a dozen – but products are priceless and if you’re successful….., you’ll get more than what you deserve. If they want to break out of their middle class doldrums and see $15M+ in returns – found a company, raise some money, be accountable and dive in. If your drug is successful, you’ll have earned your money. Academicians or bored middle class scientists who simply talk about their ideas or simply stick their toe in the water don’t deserve the returns of $15M bonus. You risked nothing to get it except for a promotion or the size of your office.

  4. alan says:

    “….former CEO Art Levinson also saw fit to recognize former Genentech scientist Napoleone Ferrara with an inaugural $3 million “Breakthrough Prize in Life Sciences” years after his pioneering work on bevacizumab (Avastin).”
    This is acutally an exmple of what SHOULD not happen! N.Ferra came up with what gene might be important, namely VEGF, BUT he DID NOT CREATE the VEGF anibody, which is what Avastin is. People within the busisness know how tricky is to create an anibody! There were many people who in the lab made the VEGF antibody but NONE of them was publically AWARDED. It is fine to reward someone for what he has dicovered – that certain gene MIGHT be important for certain process, but then in order to understand if this theory is right – one has to make the anibody, which is the actual drug. It is really pitty that all the time, all those years all the rewards are going to only one person who performed step 1 (came up with candidate gene), but step 1 is just the beginning and the other steps performed by OTHER people are the ones that bring a product to the market!

  5. Javier Cote-Sierra says:

    I did not like this “your own opinion” article. I am a team leader and I assure my team will work even harder to move the right molecules into clinical development. What you need is to put the “right scientist” to lead projects. The right leader with vision and motivation to make a big difference on patients earning more than a salary.

  6. Simon B says:

    Apart from “Scientists aren’t completely motivated by money” (which is certainly true of some people, just like the rest of the population), what you have given as headline reasons for not paying tech employees bonuses could be equally applied to sales employees as well… I don’t think you have made the case at all against a proper bonus scheme for those at the bench

  7. Ben says:

    “Scientists aren’t completely motivated by money” doesn’t mean scientists aren’t motivated by money at all, please! All these reasons could be applied to the iphone project in Apple as well, don’t you think it’s difficult to decide who should get the bonus, Jobs or the operators in Foxconn?

    • alan says:

      that’s right bro! So, I also wonder if the all the pharma administation is motivated by money and if so, what the money is compensating for – is it all the sleepless nights in the lab, making the next big discovery or what ? What is the motivation of Roche’s HR head for example making
      $5,346,932 (CHF 4,970,897)/year (2012 Compensation:)???
      Is her work more valuable than what a Scientist is doing? Cause the company will not cease operation if there is no HR but will go bankrupt if scientists are not performing well!!! There are 2 types of people in this world – Creators and Parasites and I don’t see why parasites will be better rewarded than the former. Because lets face it – the “thank you” measure is not enough of a recognition in our money drivven world!

  8. Dr.Senad Hasanagic says:

    In my opinion bonuses and salaries discussion would not solve this problem of productivity, effectiveness but also efficacy. Well, I tend to think that one of the long-term solution might be in properly recruiting/selecting researchers who are both scientists and managers ( but also clinicians/health care workers) to lead the innovation/drug development projects. I mean to lead- manage not to do test tube experiments. And pharma industry as well R&D are today about effective management just as they are about research. So I believe that R&D in pharma industry might be rejuvenated by setting up for most talented candidatesinspiring, innovative Postgraduate programs in Drug Innovation, Discovery and Development Management that would make them understand not just science but business/management as well. Such program should enable researchers to properly understand/assesses current trends/needs/techniques/financial -organizational issues in pharma industry, biomedical science and medicine and effectively design, set up and manage/lead new products discovery/ development processes in the pharma industry(from bench to bed-marks and from receptor signaling to financial/ human resources issues). Hence these professionals would be responsible for the progress and success of each of the R&D projects and they would be paid as a researchers and managers.

  9. disqus_NuqE0T2oqC says:

    Bonuses do work and it’s management’s problem to figure out who deserves what share. I think the negative sentiment toward this idea is espoused by the “parasites” in management noted below who want to keep the bucks for themselves. Why should I-bankers make all the money? They are the ultimate parasites.
    If someone leaves the company before the bonus is awarded, I think it’s well understood they have given up their right to a bonus down the road. That’s no different from any other bonus scenario.

  10. Adam says:

    Individuals don’t make drugs, companies do. Giving bonuses to individuals means that support staff and other key players are devalued. How about you pay the science divisions commensurate for their input? How about you improve publication rate and provide creative incentives. Genentech had the right idea with the 20% part, but it should just be discovery. It should be disease model development, DMPK analysis, protocol development. There should be a pool of time and resources for people with solid plans to develop science around the core business, even if it isn’t directly involved in current programs. Internal grants and sabbaticals to follow interesting topics that may not be in the current corporate interest may yield new ideas and concepts and would attract the brightest and the best.

  11. Mark says:

    I’ve worked in the biotech industry for the past 20 years and in that time have held every level of research position from technician to CSO. So I have experienced the inequalities of compensation from both ends of the spectrum, and I have two comments to add. First, one thing missing from the commentary above is that the nature of an individuals motivation changes throughout their career. Money matters at all levels, as does a desire to contribute and be recognized by your peers for that contribution, but the relative willingness of an individual to sacrifice personal freedom, family and life satisfaction outside of work can vary dramatically with the age, experience and position level of the individual. The latter desires balance the importance of the former, and effective managers understand this and try to modify compensation accordingly, but are often handicapped by inflexibility of current employment models. The GSK proposal won’t remedy that. Second, I would propose the alternative, that corporate ownership can be a stronger communal motivator across any organization size. Rather than one-off lottery ticket bonuses and the inherent issues discussed above, increase company ownership at every position level within the organization through stock/option grants, such that the face value (stock) or strike price value (options) of each individuals grants in proportion to their base salary is identical to that of the CEO. I think the bigger problem that we face is that typically less than 15% of biotech companies are owned by the employees and 80% of that is concentrated at the C-level. I believe all organizations would be more effective if it was closer to 25-30% and spread more broadly. Unfortunately, over the past ten years the trend has been the exact opposite, with further and further concentration of ownership at the top, even in new start-ups where the relative cost to the company would be miniscule.