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ITEM 11. EXECUTIVE COMPENSATION
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COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis section (CD&A) discusses the principles underlying our policies and decisions with respect to the compensation of our executive officers named in the “Summary Compensation Table”, who are referred to as our named executive officers (NEOs). For 2020, our NEOs are:
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Name
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Position
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Hire Date
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Named Executive Officers: Name, Position and Hire Date
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Ludwig N. Hantson, Ph.D.
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Chief Executive Officer
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March 27, 2017
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Aradhana Sarin, M.D.
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Executive Vice President, Chief Financial Officer
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November 13, 2017
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Ellen Chiniara, J.D.
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Executive Vice President, Chief Legal Officer and Corporate Secretary
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January 29, 2018
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Brian M. Goff
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Executive Vice President, Chief Commercial and Global Operations Officer
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June 1, 2017
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Anne-Marie Law1
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Former Executive Vice President, Chief Human Experience Officer
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June 5, 2017
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John Orloff, M.D.
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Executive Vice President, Head of Research and Development
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June 5, 2017
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(1)As required by rules and regulations of the Securities and Exchange Commission (SEC), Anne-Marie Law is considered an NEO for 2020. Ms. Law left Alexion on August 21, 2020 and, in connection with such departure, she entered into a Confidential Release and Separation Agreement, as described in further detail below.
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CD&A Table of Contents
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Executive Summary
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page 12
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Executive Compensation Framework
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page 20
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2020 Compensation Components and Key Compensation Actions
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page 23
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Compensation Governance
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page 35
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Use of Non-GAAP Financial Information in CD&A
This CD&A contains both U.S. Generally Accepted Accounting Principles, or GAAP, and non-GAAP financial measures. The non-GAAP results exclude the impact of the following GAAP items: share-based compensation expense, fair value adjustment of inventory acquired, amortization of purchased intangible assets, changes in fair value of contingent consideration, restructuring and related expenses, upfront payments related to licenses and other strategic agreements, acquired in-process research and development, impairment of purchased intangible assets, gains and losses related to strategic equity investments, litigation charges, gain or loss on sale of a business or
asset, gain or loss related to modification of purchase options, contingent milestone payments associated with acquisitions of legal entities accounted for as asset acquisitions, acquisition-related costs and certain adjustments to income tax expense. Reconciliations of non-GAAP to the closest comparable GAAP financial measures are included in exhibit 99.1 in this Annual Report on Form 10-K/A. As explained herein, these non-GAAP measures are used for the purpose of determining compensation for our NEOs. The non-GAAP financial measures are supplemental to and not a substitute for, measures of financial performance prepared in accordance with GAAP.
Executive Summary
Key Principles of Our Executive Compensation Program
Our executive compensation program is based on the following principles:
•Pay-for-Performance: Our program is designed to reward executives for actions that create short-term and long-term, sustainable shareholder value, with a strong focus on performance-based compensation, including PSUs.
•Alignment: Our program strives to increase the alignment of executives’ interests with those of our shareholders through the use of stock-based compensation and stock ownership guidelines.
•Retention: Our program aims to attract, retain and incentivize the best talent in the industry in order to ensure executive stability and continuity that we believe is necessary for consistent execution of our long-term strategy, which is particularly critical given our industry and the lifecycle of our pipeline. As we continue to advance our pipeline with assets that are at various stages of development, including pre-clinical, early stage and later stage, continuity at the executive level is critical to advancing these products as it can take product candidates years to advance through identification and development to commercialization. Further, as we have added new assets to our marketed products, through both internal development and business development transactions, leadership and continuity in commercial operations is important to our goal of continued revenue growth.
•Competitive Pay: Our program is significantly at-risk, based on market best practices, yet competitive with other companies who aggressively compete with us for top talent both on an industry and geographical basis. We believe that our ability to attract and retain top talent at all levels of the organization is a source of competitive advantage for us as Alexion advances into new platforms, geographies, technologies, indications and competitive spaces.
Continuous Enhancements to Executive Compensation Design
Based on thorough annual reviews by our Leadership and Compensation Committee (sometimes referred to in this CD&A as the Committee) and input received from shareholders and proxy advisory firms we have implemented certain changes to our executive compensation program over the last several years which have resulted in greater alignment between our executive compensation program and shareholder interests and market best practices. Key changes include:
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Current Incentive Design
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Enhancements from Prior Years
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Annual Incentives Performance Link
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Annual bonus payouts are based on performance against objective, pre-established financial, operational and strategic goals; with over 80% of payouts tied to the achievement of financial goals
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Transitioned from 100% subjective goals in 2016
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Annual Incentives Maximum Payout
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Payout capped at 200% of target
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Reduced from maximum of 300% of target in 2016
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Long Term Incentive (LTI) Mix
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PSUs comprise 65% of LTI awards
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Increased from 25% in 2016, and 50% in 2017
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PSU Maximum Payout
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New for 2020: Payout capped at 200% of target
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Reduced from 900% in 2016, 350% in 2017, and 300% in 2018 and 2019
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PSU Performance Period
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3-year performance period (3-year goals and cliff vesting)
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Changed from 1-year performance goals with 3-year ratable vesting in 2016 and 2017
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PSU Goal Transparency
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New for 2020: Linked payout to achievement of product launch and revenue goals
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Changed from goals relating to the achievement of R&D and clinical trial milestones and additions to our pipeline in prior years
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PSU TSR Payout Cap
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New for 2020: Relative TSR component limits overall payout if not above peer median
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TSR modifier impacted operational payout to increase or decrease the payout if above or below top or bottom quartile of peers in 2018 and 2019
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In connection with our shareholder engagement initiative, which included both members of Alexion management and of the Board of Directors, we request input and feedback from our shareholders on the structure, components and philosophy of our executive compensation program and the response we have received from our shareholders has generally been favorable and supportive of our approach and the improvements we have made and continue to make.
Incentives That Reward Executives for Actions that Create Sustainable Shareholder Value
Our incentives link pay with value creation both over the short- and long-term and we use different performance metrics in our short-term and long-term incentive plans. Key features include:
•Incentive performance goals encompass financial, operational, strategic, and shareholder return metrics designed to ensure executive focus on broad-based strategic execution and links payouts realized by executives to strong financial performance and shareholder value creation;
•Annual cash incentive payout based on the achievement of pre-established, objective performance goals that we believe furthers execution of the Company’s strategy and advances financial performance;
•2020 annual cash incentive financial targets were set significantly higher than actual 2019 performance;
•PSUs comprise 65% of LTI awards, and over 50% of CEO target total direct compensation (base salary, target annual cash incentive and equity incentives);
•Inclusion of TSR metric in PSUs ensures that the number of shares of common stock issued to the executive is directly aligned with shareholder value creation during the term of the PSUs; and
•RSUs vest on a ratable basis annually over four years to serve our talent retention objectives and further align our executives’ interests with those of our shareholders.
2020 Executive Compensation Aligned with 2020 Company Performance
•2020 financial performance was outstanding: Total revenues for 2020 were approximately $6,070 million, a 22% increase compared to 2019. On a GAAP1 basis, diluted earnings per share was $2.72, inclusive of impairment charges of $2,053 million primarily relating to the KANUMA intangible asset and a related deferred tax benefit of $377 million, compared to $10.70 in the prior year, inclusive of one-time tax benefits of $382 million related to intra-entity asset transfers of intellectual property. Non-GAAP1 diluted earnings per share for 2020 was $12.51, a 19% increase versus the prior year. (1For a reconciliation of non-GAAP diluted earnings per share to the closest comparable GAAP measure, see exhibit 99.1 in this Annual Report on Form 10-K/A.)
•Performance goals that underpinned 2020's annual incentives were set at a significantly higher level than the Company’s 2019 actual performance. These 2020 performance incentive targets, and the resulting pay-outs, were driven, in part, by (i) ULTOMIRIS facilitated patient conversion performance, with ULTOMIRIS being established as the standard of care for PNH in our top three markets (US, Germany and Japan) and (ii) the steps taken during 2020 to accelerate our global neurological footprint.
•Our executives' incentives continue to remain aligned with our shareholders' interests as equity constitutes the largest component of our executives' total compensation. The Committee continues to emphasize the importance of shareholder-linked equity compensation by including a payout cap in the 2020 PSU program for TSR performance below the median of the TSR Peer Group.
•We continued to focus on at-risk pay elements, with over 92% of the CEO’s total compensation being at-risk.
•PSUs linked to the achievement of 3-year financial and R&D goals, as well as our relative TSR, represented approximately 55% of total target incentives (annual cash incentives and LTI) for our executives including the CEO for 2020.
Compensation Practices - What We Do And Do Not Do
Below is a description of some of our other executive compensation practices that further highlight our commitment to compensation governance and paying for performance:
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What We Do
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Hold an annual say-on-pay advisory vote for shareholders
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Utilize market and peer group data to ensure we compensate fairly and competitively, but not excessively
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Mitigate undue risk-taking by:
• Using multiple performance goals
• Imposing caps on payouts
• Maintaining forfeiture and clawback policies to recoup incentive awards (cash and equity)
• Perform annual compensation risk assessments
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Use an appropriate mix of cash and equity compensation, with an emphasis on variable (at-risk) compensation
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Established “Double trigger” accelerated vesting provisions upon a change in control
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Set meaningful stock ownership and retention guidelines for the CEO and other executives
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Have overlapping membership on the Leadership & Compensation Committee and the Audit & Finance Committee and the Science & Innovation Committee
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The Audit and Finance and the Science and Innovation Committees review and advise the Leadership and Compensation Committee in regard to goal setting in incentive plans
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Grant long-term performance-based awards in the form of PSUs that have a 3-year cliff vesting provision
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Pay a significant portion of compensation in the form of equity (with multi-year vesting)
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Engage with shareholders on operational, compensation, strategic, capital allocation and governance issues
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Require non-compete and other restrictive covenants in employment agreements and incentive award agreements
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What We Do Not Do
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X
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No granting of discounted stock options
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No change in control excise tax gross-ups
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No repricing underwater stock options without shareholder approval
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X
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No hedging or pledging of our stock
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X
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No “single-trigger” change in control vesting or cash payments
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X
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No excessive perquisites
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No tax gross-ups on perquisites (other than for standard relocation benefits)
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No multi-year guaranteed incentive awards
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2020 Performance Highlights
Over the course of 2020—a significant and transformational year for our company—we continued to execute against our stated long-term strategy that we began in 2017 to transform Alexion’s organization and development pipeline to deliver value for patients and drive sustainable growth through our LEAD-EXPAND-DIVERSIFY value creation strategy. When the COVID-19 pandemic emerged, we shared the world’s grave concern about its threat and potential impact to people’s lives, including our employees and the patients we serve. We quickly transitioned our operations to adapt, including taking precautions to protect our team of over 3,800 employees, managing a robust supply chain, and working closely with patients who rely on our medicines to establish processes that are designed to ensure there were no interruptions to their supply and to the supply of our ongoing clinical trials.
Despite challenges across our industry resulting from the pandemic, in 2020 we demonstrated the resilience of our people and our operating model, which allowed our teams to maintain their focus on the ambition to deliver double digit revenue growth through 2025. Our achievements throughout 2020 have reaffirmed our belief in the potential of Alexion’s rare disease portfolio, which currently consists of five transformative medicines approved to treat seven rare diseases and devastating conditions. The value Alexion has delivered, including through our proven innovation, transformative business development initiatives and commercial success in 2020, and the opportunities for significant growth were recognized in the transaction we announced in December 2020 with AstraZeneca. We are confident that Alexion’s strong portfolio, innovative rare disease pipeline, talented global workforce and strong manufacturing capabilities in biologics will continue to thrive once we become part of AstraZeneca.
Alexion achieved numerous important R&D and commercial milestones in 2020 as we continued to work diligently towards our goal of 10 potential launches by 2023. We made strong progress in our C5 inhibitor portfolio over the course of the year with several global regulatory approvals and the initiation of new development programs. We have completed the enrollment of our ULTOMIRIS gMG Phase 3 clinical trial as part of our efforts to expand the addressable market to roughly 20,000 gMG patients in the U.S. In addition, we advanced our NMOSD and ALS trials, which are now over 85% and 75% enrolled, respectively, with our ALS trial now closed to new patient screening. We submitted two IND filings for our novel ALXN1820 and ALXN1850 assets, which represent our commitment to continued innovation as we work to support Alexion’s ambition for at least five novel IND filings by 2025. We also advanced ALXN1720, our third-generation C5 inhibitor, which is a long-acting, small volume, subcutaneous mini-body, that is potentially well suited for larger rare disease patient populations. Our diversification efforts were reflected in the acquisitions of Portola and Achillion to grow our commercial and development portfolios as well as the progression of our Phase 3 ALXN1840 program in Wilson's disease, with top line data expected in the first half of 2021, and we advanced CAEL-101 in AL amyloidosis with the initiation of two parallel Phase 3 trials in the third quarter of 2020.
Following our acquisition of Portola Pharmaceuticals we have successfully integrated the company into Alexion’s operations. By leveraging our commercial strengths and expertise in the acute care setting, we have made great progress to repower the launch of Portola’s key asset, ANDEXXA/ONDEXXYA® [coagulation factor Xa (recombinant), inactivated-zhzo] and laid the groundwork to expand into new indications and geographies.
Through our consistent focus and efforts in 2020, we expanded the number of patients whose lives our medicines have the potential to change. Alexion added more than 700 U.S. neurology patients over the course of the year, and at the end of 2020, we served nearly 2,600 patients in the U.S. As we move into 2021 with renewed momentum, we remain focused on our ambition of quadrupling the number of U.S. neurology patients we treat by 2025. We have high confidence in our continued growth potential moving forward.
As we continue advancing our mission of delivering life-changing therapies to people with rare diseases and devastating conditions, we maintain a patient-centric culture of integrity driven by our people. We attribute our continued strong innovation and financial and operational performance to our employees and executive leadership. Our key objectives, which were established by our management and Board early in 2020, and corresponding achievements against these goals over the past year include those summarized below:
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Sustainable growth in PNH, aHUS & Metabolic Businesses
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ü
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ULTOMIRIS 100mg/mL approval (US & EU) for PNH/aHUS
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ü
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>70% PNH ULTOMIRIS converted in US, Germany and Japan
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Continued Expansion of Blockbuster Neurology Franchise
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Neurology is largest franchise in the U.S. –measured by both revenues and patient volume
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Ended 2020 with 2,600 patients on treatment with SOLIRIS for gMG and NMOSD in the U.S.
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Completed the enrollment of ULTOMIRIS gMG Phase 3 Study
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Progression of a Diversified Pipeline
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Ph3 ALXN1840 trial in Wilson disease fully enrolled
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Ph3 CAEL-101 trial initiated in AL amyloidosis
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Filed sBLA in U.S. to expand Andexxa beyond currently labeled Factor Xa agents to include enoxaparin and edoxaban
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Execution on Financial Ambitions
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2020 revenue of $6.070 billion – YoY growth of 22%
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Delivered GAAP* diluted EPS of $2.72 in 2020 compared to $10.70 in the prior year. Non-GAAP* diluted EPS for 2020 was $12.51, a 19% increase versus the prior year.
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*For a reconciliation of each of our non-GAAP performance metrics to our most comparable GAAP performance metrics, please see exhibit 99.1 in this Annual Report on Form 10-K/A.
The strength of Alexion’s commercial business and robust pipeline progress is built upon a foundation of continuous, disciplined financial management. Select financial highlights of the year are highlighted below, demonstrating Alexion’s continued strong performance:
Throughout the year, we supported our disciplined business development strategy intended to allow Alexion to diversify our future revenues while retaining capital flexibility.
Driven by strong Board oversight and executive talent, enhanced organizational capabilities and a culture rooted in compliance and patient-centricity, Alexion remains grounded in the mission of transforming the lives of patients with rare diseases and devastating conditions and their caretakers to meet their unique needs. Our highly specialized field teams support diagnosis and treatment through best-in-class data analytics, tailored to serve each of our rare disease communities, providing access to care and supporting patients through each step of their treatment journeys. These capabilities are unique and not easily replicable.
2020 Say-On-Pay Vote and Shareholder Engagement
We have undertaken an on-going and year-round shareholder engagement initiative at the request of and in conjunction with our Board. The outreach is led by our investor engagement team, which includes our Head of Investor Relations, Corporate Counsel, and Head of Total Rewards. Members of our Board have taken an increasingly active role in our investor outreach initiatives in 2018, 2019 and 2020. Through these interactions, we gather and consider feedback from our shareholders (which is communicated to the full Board of Directors) on strategic, operational, governance and executive compensation matters. Specifically, in connection with our 2020 Annual Meeting of Shareholders and after, we continued to engage with our shareholders on operational and strategic matters and our executive compensation programs among other matters. At our 2020 Annual Meeting, our shareholders approved our non-binding advisory vote on 2019 compensation paid to Alexion's named executive officers with 91.5% of votes cast in favor of the proposal.
Shareholder Engagement During 2020
*Percentages above reflect the % of our outstanding shares
Our shareholder engagement is a year-round effort and in 2020, members of our Board, our investment engagement and executive team reached out to shareholders as reflected in the charts above. Since the Board refreshment was undertaken in 2017, director involvement and interaction with shareholders has continued to grow. This reflects a long-standing policy of the Board and the
individual Board members to continually seek, consider and incorporate feedback from all our shareholders and stakeholders on how to enhance Alexion's operations, long-term value and its role in the rare disease community and the broader world.
Our Board and our executives believe that an important part of an effective corporate governance program is active engagement with our shareholders. We value the views of our shareholders and other stakeholders, and, as noted above, we communicate with them regularly and solicit input on a number of topics. And the increased level of director interaction with Alexion investors reflect a desire on the part of the Board to hear directly from shareholders on their perspective about what steps the Company should undertake to create value and serve the interests of those who have invested their funds into Alexion. With respect to executive compensation matters, we always welcome the input from shareholders at any time during the year and many of the discussions that our directors took part in included a review of compensation policies and the feedback received has been the basis for the discussions around the 2021 compensation decisions.
Following the filing of our definitive proxy statement in a given year, our shareholder outreach efforts tend to be targeted to matters under consideration at the annual meeting, including our “say-on-pay” vote and executive compensation. In connection with the 2020 Annual Meeting of Shareholders (and the shareholder input on executive compensation matters following the 2020 Annual Meeting of Shareholders), shareholders that did respond to our invitations to a meeting and that did engage with our team acknowledged the alignment of our executives' pay with our overall performance and generally expressed support for our executive compensation program and structure. Investor input received over the past year has informed the decision-making of the Committee. Our shareholders have continued to express a preference for a compensation program that is heavily equity-based and linked to Company performance and shareholder value creation which has been incorporated into the compensation philosophy at Alexion.
Over the past few years, Alexion has, in our communications with investors on executive compensation matters, emphasized our compensation roadmap with the progression from a more subjective to more quantitative measurement for our annual cash incentive bonus plan (AIP) and our LTI program, as well as ensuring appropriate rigor and governance to plan design and increasing the performance targets every year so that performance has to meaningfully improve every year to continue to receive comparable compensation in subsequent years.
Executive Compensation Philosophies and Peer Group
The primary objectives of our executive compensation program are to reward executives for actions that drive financial performance while simultaneously creating long-term sustainable shareholder value, and to attract and retain the best talent in the industry through competitive compensation. To achieve these objectives, the Committee considers and approves compensation programs based on the Committee's executive compensation philosophies, which include the following:
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Drivers
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Philosophies
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Pay for Performance
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• We believe that establishing competitive opportunities to incentivize high performance should deliver greater rewards when corporate and individual performance exceed expectations and lower compensation when corporate or individual performance falls short
• Performance is measured by financial, operating and strategic performance, return to shareholders and individual contributions
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Alignment of Executives’ Interests With Shareholders
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• We strive to align the interests of executives with those of our shareholders. We believe that when executives act as owners, they take actions to create sustainable long-term shareholder value, while eschewing risky behavior in search of purely short-term gains
• We align the interests of our executives with those of our shareholders through equity awards comprising a significant percentage of overall compensation, longer vesting of time-based equity, and robust stock ownership guidelines
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Attract, Retain and Incentivize
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• We are committed to attracting and retaining industry-leading talent through well-designed compensation programs that incentivize our employees to achieve rigorous corporate objectives that are important to our business and long-term success
• We believe that ensuring the stability and continuity of talent at all levels is critical to the success of our Company especially given the nature of our business and the relatively longer development period of our product pipeline
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Competitive with Peer Group
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• We believe that compensation paid by market peers matters
• When we set targets, we evaluate the practices of our peers and market data to validate that Alexion is competitive with other companies who compete with us for talent
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Balanced Combination of Compensation Elements
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• We strive for an appropriate balance between cash and equity incentives
• The annual cash incentive is intended to motivate individuals to successfully execute on short-term financial and strategic objectives
• Equity incentives are intended to focus executives on the long-term success of the organization, as well as, in the case of PSUs, the achievement of pre-established financial and operational performance goals and shareholder value creation, as well as align the interests of executives with those of shareholders
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Executive Compensation Framework
Evolution of our Compensation Programs
Over the last several years, we have made significant changes to our executive compensation program in order to:
•Enhance alignment with our pay-for-performance philosophy
•Strengthen the link between executive and shareholder interests
•Incorporate good corporate governance practices
•Align with competitive and best market practices
•Reflect input received from shareholders and proxy advisory firms
The chart below shows the evolution of our programs noting the key changes made each year:
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2016
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Change-in-Control Enhancements
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Eliminated:
Single-trigger vesting on a change-in-control
Section 280G gross-up entitlements
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2017
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Long-Term Incentive Mix
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Reduced Stock Options from 50% to 20%
Increased RSUs from 25% to 30%
Increased PSUs from 25% to 50%
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Annual Cash Incentive Plan
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Transitioned bonus payouts from 100% based on subjective performance to being based on performance against pre-established goals (50% financial and 50% strategic)
Reduced maximum payout from 300% to 200%
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Performance Share Unit Plan
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Reduced maximum payout from ~900% to 350%
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2018
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Long-Term Incentive Mix
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Eliminated Stock Options
Increased RSUs from 30% to 35%
Increased PSUs from 50% to 65%
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Annual Cash Incentive Plan
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Increased weighting of financial goals from 50% to 65%; bringing total potential pay-out tied to financial goals to over 80% given some strategic goals have financial objectives
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Performance Share Unit Plan
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Reduced maximum payout from 350% to 300%
Shifted from a 1-year performance period with 3-year ratable vesting to a 3-year performance period with cliff vesting
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2019
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Performance Share Unit Plan
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Increased weighting of Revenue goal from 40% to 60% and reduced weighting of Operating Margin goal from 60% to 40%
Shifted from applying the rTSR modifier based on a sliding scale to a "cliff" approach with binary outcomes for performance below or above the 25th and 75th percentiles
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2020
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Performance Share Unit Plan
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Reduced maximum payout from 300% to 200%
Increased weighting of Revenue goal from 60% to 70%
Removed Operating Margin as a goal and replaced with R&D launch goals, weighted at 30%
Introduced a relative TSR cap to limit payouts if at or below peer median
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Pay-For-Performance Summary
Alexion’s executive compensation program is based on a pay-for-performance foundation that supports our business strategy and aligns executives' interests with those of our shareholders. We believe that a significant portion of each executive's compensation should be variable and tied to the achievement of pre-established Company performance goals that drive value creation for our organization and our shareholders. Accordingly, the Committee has designed our incentive programs with the goal of ensuring that actual realized pay by our executives varies above or below targeted compensation opportunities based on the achievement of challenging, yet achievable, performance goals, as well as the executive's individual contribution to performance. The Committee measures performance using several financial, operational and strategic goals, as more
fully described below. The specific goals that we use to measure our performance under our executive compensation program were selected because the Committee believes that they are important to Alexion’s financial and operational success over the short- or long-term, as applicable.
The pay-for-performance ethos is reflected within both our short-term (one-year) and long-term (three-year for PSUs and four-year for RSUs) compensation programs. In addition, a component of our long-term compensation is directly tied to total shareholder return, or TSR, which aligns payouts with outcomes for our shareholders. In general, we believe the mix of short- and long-term variable compensation components provides appropriate incentives to motivate near-term performance, providing significant incentives to keep our executives focused on making future-oriented business, strategic and operational decisions that are intended to drive long-term corporate benefits that drive shareholder value, and not exclusively on quarterly or annual performance, and aligning the interests of executives with those of shareholders.
The charts below set forth the target total direct compensation mix for Dr. Hantson, individually, and the other NEOs, as a group, for 2020.
Compensation Mix: CEO
Compensation Mix: Average for NEOs (excluding CEO)
(1)Target Total Direct Compensation is calculated using 2020 Base Salary, 2020 Target Cash Bonus and February 2020 LTI Grants of our current NEOs.
2020 Compensation Components and Key Compensation Actions
The primary elements of our executive compensation program and a summary of the actions taken by the Committee with respect to the 2020 compensation of our NEOs are set forth in the following table and are also described in further detail below:
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Compensation Component
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Link to Business and Talent Strategies
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2020 Compensation Actions
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Base Salary
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Provide competitive, fixed, cash compensation to attract and retain top talent and recognize sustained performance, job scope and experience
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Annual Base Salaries established at the beginning of the year are:
Reviewed annually against survey and peer market data
Changes are made based on position relative to market and performance
2020 increases were based on market positioning and reflective of merit, expanded roles and promotions
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Annual Cash Incentive Compensation
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Motivate executives to achieve rigorous annual financial and strategic goals that support our short- and long-term objectives
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Annual Financial and Strategic goals established at the beginning of 2020 include:
Financial (65%):
Revenue
Non-GAAP Operating Margin
Non-GAAP EPS
Strategic (35%):
Lead & Expand
Diversify
Strengthen our Culture & Capabilities
Performance against the pre-established metrics are assessed after the end of the fiscal year by the Committee
Overall, our 2020 performance versus our goals exceeded targets and our corporate achievement was 166% of target
Bonus payouts were aligned to the corporate achievement of 166% with no additional performance adjustments for our NEOs
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LTI Compensation
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Motivate and reward executives for exceptional execution of long-term financial and strategic objectives, while providing a direct link to the creation of sustainable shareholder value and execution of our strategic business plan; align the interests of executives with those of our shareholders
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Annual LTI awards granted in February of 2020 include:
PSUs (65%):
3-year performance period with "cliff" vesting upon certification of performance results by the Committee
Dependent on the achievement of Revenue and R&D launch goals
Reflects goals that the Committee has identified as key indicators of Company performance and creation of shareholder value
Shares ultimately earned can be decreased based on our relative TSR performance
RSUs (35%):
4-year ratable vesting
Provide focus on stock price growth and serve our talent retention objectives
2018 Earned PSUs:
Based on Alexion's 3-year financial and R&D performance, and relative TSR results, the Committee certified a payout of 245%
|
2020 Compensation Decisions for Named Executive Officers
As further described below, the Committee approved 2020 base salaries, annual cash incentive targets, and LTI awards, including PSUs and RSUs, in February 2020 for each of the NEOs. The Committee has established annual compensation decision-making and award practices in which base salary, annual cash incentive targets and goals, as well as LTI grants are made following the completion of the selection of our peer group and our internal performance reviews of our executive officers, as well as a review of the external market equity practices, including the data from our peer group and the F.W. Cook survey and market data. When determining compensation for each NEO, the Committee uses the market median values from the peer group as a reference point for each element of compensation, but the Committee considers and assesses other factors when arriving at final compensation decisions, such as each executive’s role and responsibilities, performance trend, contributions to financial and strategic performance results and internal equity, which may result in actual compensation being greater or less than the market median of the peer group.
2020 Base Salary Decisions
In February 2020, the Committee made the following base salary adjustments that became effective January 1, 2020:
•Merit Increases: All NEO's received an annual merit increase of 3% except for Dr. Sarin, due to the fact that she received base salary increases in late 2019 associated with her promotion to Chief Financial Officer.
•Market Adjustments: Dr. Hantson and Dr. Orloff each received additional increases to better align their salaries with market after a review of the external peer data for comparable positions.
•Expanded Roles: Mr. Goff and Ms. Law both received additional increases to reflect their expanded responsibilities. Mr. Goff became our Chief Commercial & Global Operations Officer which includes responsibility for driving continued long-term growth and aligning our commercial and operations strategy to serve more patients and families with rare and devastating diseases. Ms. Law became our Chief Human Experience Officer to reflect her expanded role which included the technology function to evolve our digital employee and patient experiences.
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2020 Base Salary Changes
|
CEO
|
2019 Base Salary
|
2020 Base Salary
|
% Change
|
Ludwig Hantson
|
$1,250,000
|
$1,300,000
|
4%
|
|
|
|
|
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2020 Base Salary Changes
|
All Other Named Executive Officers
|
2019 Base Salary
|
2020 Base Salary
|
% Change
|
Aradhana Sarin
|
$800,000
|
$800,000
|
0%
|
Ellen Chiniara
|
$690,000
|
$710,700
|
3%
|
Brian Goff
|
$740,000
|
$799,200
|
8%
|
Anne-Marie Law
|
$695,000
|
$729,750
|
5%
|
John Orloff
|
$770,000
|
$831,600
|
8%
|
Annual Cash Incentive Awards
We pay annual cash incentive awards to drive the achievement of strong annual performance and certain long-term strategic measures that can be implemented on a short-term basis. The Committee endeavors to deliver a meaningful portion of total cash compensation in the form of performance-based annual cash incentives. The Committee believes that doing so is critical because the opportunity for a meaningful cash award will, together with strong management and accountability, drive executives to individually and collectively achieve and exceed Alexion's annual objectives.
2020 Annual Incentive Plan Design
The Committee annually evaluates incentive targets by taking into account marketplace competitiveness compared to the peer group and market data provided by our independent compensation consultant. For each of the NEOs, the Committee established annual cash incentive targets as a percentage of base salary actually earned for 2020 as follows:
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|
2020 Annual Incentive Targets (% of Base Salary)
|
CEO
|
2019 Target
|
2020 Target
|
Ludwig Hantson1
|
120%
|
135%
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|
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|
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|
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|
|
2020 Annual Incentive Targets (% of Base Salary)
|
All Other Named Executive Officers
|
2019 Target
|
2020 Target
|
Aradhana Sarin
|
70%
|
70%
|
Ellen Chiniara
|
70%
|
70%
|
Brian Goff
|
70%
|
70%
|
Anne-Marie Law
|
70%
|
70%
|
John Orloff
|
70%
|
70%
|
(1) Dr. Hantson's target annual incentive was increased January 1, 2020 to better align with market after review of external peer data.
The Annual Cash Incentive Plan is calculated as follows:
•No annual cash incentive is payable if the threshold performance goals are not achieved
•A maximum of 200% of target is payable for achieving the highest level of performance
•Individual performance is a modifier, with the potential to increase or decrease an NEO's cash incentive (but not in excess of 200% of target)
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|
Eligible Earnings
|
X
|
Target %
|
X
|
Corporate Multiplier (Financial & Strategic Weighted Funding)
|
X
|
Individual Performance Multiplier
|
=
|
Max Payout Capped at 200%
|
The Leadership and Compensation Committee, with input from two other standing Board Committees (the Audit and Finance Committee and the Science and Innovation Committee), established the financial and strategic goals, along with their weightings, for the 2020 AIP at the beginning of the year, as set forth below:
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|
Goal
|
Weighting
|
|
|
|
Financial Goals
(65% Total Weighting)
|
Revenue
|
40%
|
Non-GAAP Operating Margin
|
30%
|
Non-GAAP EPS
|
30%
|
|
|
|
Strategic Goals
(35% Total Weighting)
|
Lead & Expand
|
50%
|
Diversify
|
37.5%
|
Strengthen our Culture & Capabilities
|
12.5%
|
2020 Annual Incentive Plan Performance
The Committee established the financial and strategic performance goals at the start of 2020. The Committee believed that the performance goals were challenging, yet reasonably achievable, but that achievement of the targets would require exceptional performance from each of the NEOs and the entire executive team as a unit and, to further incentivize our NEOs, the Committee established maximum goals that were considered to be even more demanding. The Committee also believed that achievement of these goals required exceptional cross-functional performance and execution by the executive team. After the end of the year, the Committee determined our achievement of the financial and strategic goals of the AIP resulted in a total performance score of 166% of target, as detailed in the following sections.
2020 Financial Performance
We exceeded each of our financial goals, resulting in a performance score of 174% for the financial component of the AIP, as follows:
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Performance Range
|
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|
2020 Financial Goals
|
Threshold (50%)
|
Target (100%)
|
Maximum (200%)
|
2020 Adjusted Results
|
Achievement %
|
Weighted Performance Funding %
|
|
|
|
|
|
|
|
Revenue (40%)
|
$5,070M
|
$5,633M
|
$6,196M
|
$6,091M
|
177%
|
71%
|
Non-GAAP Operating Margin (30%)
|
49.7%
|
53.9%
|
57.3%
|
56.4%
|
167%
|
50%
|
Non-GAAP EPS (30%)
|
$8.98
|
$10.88
|
$12.77
|
$12.43
|
177%
|
53%
|
|
|
|
|
|
|
|
Financial Performance Funding: 174%
|
Funding for Financial Performance at 65% (174% x 65%) = 113%
|
In establishing the 2020 financial performance goals, the Committee took into account the 2019 and 2018 goals and actual performance and established challenging, yet reasonably achievable, 2020 goals that required meaningful improvement over 2019 performance. The tables below show the year-over-year impact for two common financial metrics:
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Year-Over-Year Financial Performance Targets & Results
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|
|
Targets
|
Financial Goals
|
2018
|
2019
|
2019 vs. 2018 (% increase)
|
2020
|
2020 vs. 2019 (% increase)
|
Increase over 3-year period
|
|
|
|
|
|
|
|
Revenue
|
$3,920M
|
$4,620M
|
18%
|
$5,633M
|
22%
|
44%
|
Non-GAAP EPS
|
$6.80
|
$8.85
|
30%
|
$10.88
|
23%
|
60%
|
|
|
|
|
|
|
|
|
Adjusted Results
|
Financial Goals
|
2018
|
2019
|
2019 vs. 2018 (% increase)
|
2020
|
2020 vs. 2019 (% increase)
|
Increase over 3-year period
|
|
|
|
|
|
|
|
Revenue
|
$4,190M
|
$4,919M
|
17%
|
$6,091M
|
24%
|
45%
|
Non-GAAP EPS
|
$7.75
|
$10.42
|
34%
|
$12.43
|
19%
|
60%
|
|
|
|
|
|
|
|
|
|
|
Target Increases over Prior Year Actual
|
|
2019 Target vs. 2018 Actual
|
2020 Target vs. 2019 Actual
|
|
|
|
Revenue
|
10%
|
15%
|
Non-GAAP EPS
|
14%
|
4%
|
In determining the methodology for calculating performance goals and actual performance for each of the financial components of the 2018, 2019 and 2020 AIP, the Committee determined to make certain adjustments to the amounts reported in the Company’s Annual Report on Form 10-K for 2018, 2019 and 2020, respectively, to better reflect the Company's operating performance. 2020 reported results were adjusted in connection with determining performance under the 2020 AIP for the impact of foreign exchange on revenues on non-GAAP operating margin and non-GAAP EPS as compared to internal budget amounts.
For a reconciliation of non-GAAP operating margin and non-GAAP earnings per share (prior to the additional adjustments described in the preceding paragraph) to the closest comparable GAAP measure, see exhibit 99.1 in this Annual Report on Form 10-K/A.
2020 Strategic Performance
The strategic performance goals for the 2020 AIP were focused on continuing to improve certain core aspects of Alexion's business. The goals were detailed and granular, and structured to drive performance to achieve specific milestones that had been identified as integral to Alexion's operations, as detailed in the 2020 Strategic Performance table below. This achievement resulted in a performance score of 153% for the strategic component of the 2020 AIP.
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|
|
2020 Objective
|
2020 Goal
|
Achievement
|
2020 Achievement %
|
Weighted Performance Funding %
|
|
|
|
|
|
Lead & Expand (50%)
|
Establish ULTOMIRIS as the Global Market Leader
Accelerate momentum globally in Neurology
|
Meaningful progress in establishing ULTOMIRIS as the global market leader, with conversion rates and revenue results exceeding expectations established in the target goals
2020 gMG and NMOSD revenue results met and exceeded expectations, respectively
|
175%
|
87%
|
Diversify
(37.5%)
|
Achieve 6 key clinical milestones in 2020
Deliver at least 2 assets
|
Achieved regulatory submissions and approvals ahead of schedule
Successful acquisition of Portola brought one commercial and one Phase 2 clinical asset
|
125%
|
47%
|
Strengthen Culture & Capabilities (12.5%)
|
Strengthen our culture and capabilities to execute on innovation
|
Enhance Alexion's reputation as a leader in rare disease by designing a baseline assessment for reputation
Build world-class leadership and management capabilities through a six-month manager training program
|
150%
|
19%
|
|
|
|
|
|
Strategic Performance Funding: 153%
|
Funding For Strategic Performance at 35% (153% x 35%) = 53%
|
The overall funding for 2020 annual cash incentives was determined to be 166% of target:
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|
|
Funding for Financial Performance = 113%
|
Funding for Strategic Performance = 53%
|
2020 Total Performance Funding = 166%
|
2020 Individual Performance
In February 2021, the Committee approved the 2020 bonuses for the NEOs. All of the NEOs received the 2020 corporate performance multiplier with no additional individual performance adjustments. The following table sets forth the 2020 AIP targets and the actual amounts paid to the NEOs under the 2020 AIP:
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|
|
2020 AIP Payout
|
CEO
|
2020 Target
|
Annual Cash Incentive Paid
|
Corporate Multiplier
|
Individual Performance Multiplier
|
% of Target
|
Ludwig Hantson
|
$1,755,000
|
$2,913,300
|
166%
|
100%
|
166%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 AIP Payout1
|
All Other Named Executive Officers
|
2020 Target
|
Annual Cash Incentive Paid
|
Corporate Multiplier
|
Individual Performance Multiplier
|
% of Target
|
Aradhana Sarin
|
$560,000
|
$929,600
|
166%
|
100%
|
166%
|
Ellen Chiniara
|
$497,490
|
$825,833
|
166%
|
100%
|
166%
|
Brian Goff
|
$559,440
|
$928,670
|
166%
|
100%
|
166%
|
John Orloff
|
$582,120
|
$966,319
|
166%
|
100%
|
166%
|
(1)Ms. Law received a pro-rated annual bonus payment under the AIP pursuant to the terms of her separation as described below.
Long-Term Incentive Awards
The Committee believes that LTI awards are a critical element of compensation that provide a mechanism to align the interests of shareholders and executives, and promote behaviors consistent with Alexion’s strategic plan and financial goals. Each LTI award is a variable component of compensation and no individual, including any NEO, is guaranteed to receive an award or any value in respect of his or her awards. The Committee believes that its practice of granting LTI awards to Alexion executives is critical to driving long-term successful performance.
The Committee has not established formal guidelines for LTI award grants to our executives, including our NEOs. In determining LTI awards for executives, the Committee considers:
• Peer group and market data;
• The individual's historic contributions and potential contributions to Alexion's growth and financial results;
• The value of proposed awards;
• Corporate performance; and
• The individual's level of responsibility within Alexion.
The Committee has established a compensation approval process such that all components of compensation are approved at the same time early each year. By taking a holistic view to each of the cash component of compensation (base salary and annual bonus) and the equity component of compensation, the Committee ensures that an executive's total compensation is consistent with the Committee’s overall philosophy and objectives.
In February 2020, the Committee approved LTI awards for the NEOs in the percentage set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units 65%
|
+
|
Restricted Stock Units 35%
|
=
|
Long Term Incentive Award
|
We have an established annual LTI grant practice in which grants are made following the completion of the selection of our peer group, our internal performance reviews of our executives, and a review of the external market equity practices, including peer group and survey market data. The Committee approves the annual LTI grants in February of each year following our annual earnings release. In accordance with our equity grant policy, the NEO's LTI awards are granted on the last day of February, with the number of shares subject to the LTI awards determined based upon the closing stock price three business days following Alexion's annual earnings release, which, based on past practice, is typically issued in late-January or early-February. Other LTI
grants, such as those made in connection with a new hire, are generally granted on the first trading day of the month following the date of hire.
The 2020 RSU and PSU equity awards were granted to our NEOs in February 2020. The RSU awards will vest over four years in equal annual installments. PSU awards are earned if the applicable performance goals are satisfied over a three-year performance period and vest upon certification by the Committee that the performance criteria are met.
The following tables provide information on the 2020 PSUs and RSUs granted to our NEOs:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
LTI Awards
|
CEO
|
Proposed Equity Value1
|
Number of RSUs
|
Number of PSUs
(At Target)
|
Ludwig Hantson
|
$13,000,000
|
44,201
|
82,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
LTI Awards
|
All Other Named Executive Officers
|
Proposed Equity Value1
|
Number of RSUs
|
Number of PSUs
(At Target)
|
Aradhana Sarin
|
$3,200,000
|
10,880
|
20,206
|
Ellen Chiniara
|
$3,000,000
|
10,200
|
18,943
|
Brian Goff
|
$3,200,000
|
10,880
|
20,206
|
Anne-Marie Law
|
$3,000,000
|
10,200
|
18,943
|
John Orloff
|
$3,200,000
|
10,880
|
20,206
|
(1)Proposed Equity Value reflects the value approved by the Committee. The values included in the Summary Compensation and Grants of Plan-Based Awards Tables reflect the grant date fair values calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("FASB ASC Topic 718") as well as incremental fair value associated with modifications of outstanding equity awards that occurred during 2020. Therefore, those accounting values differ from the values included in these tables. The grant date fair value of PSUs with a TSR gate is determined using the Monte Carlo simulation model and reflects the probable outcome of the performance conditions on grant date.
2019 Performance Share Unit (PSU) Modification
Following the acquisition of Portola in July 2020, modifications were made to both Revenue and Operating Margin targets for our 2019-2021 PSU program to include the results of the Portola business. These modifications are reflected in the Grants of Plan Based Awards in Fiscal 2020 on page [44].
2020 Performance Share Unit (PSU) Design
We redesigned the PSU component of the LTI program for 2020, while maintaining the same mix of RSUs and PSUs, in order to address the following key objectives:
|
|
|
|
|
|
Objective
|
Changes from 2019 Program
|
Strengthen Link to Shareholder Value Creation
|
Increased impact that rTSR results have on overall PSU payout by adding a rTSR-based limit on the overall payout for performance at and below the median of the TSR Peer Group
|
Create Better Alignment with Market Best Practices
|
Reduced maximum payouts from 300% to 200%
|
Enhance Focus on Key Long-Term Strategic Objectives
|
Increased the importance of R&D milestones (now launch goals) by including them as core performance goals rather than as a separate component that would result in additional PSUs being earned, with a 30% weighting to focus our executives on product expansion and diversification
Increased the weighting of our revenue goal from 60% to 70% to align with shareholder expectations for strong top line growth by driving conversion to ULTOMIRIS, expanding our current assets into new diseases and diversifying our portfolio
Eliminated Operating Margin as a goal because it is a goal in our Annual Cash Incentive Plan, which reduces overlap of goals
|
Increase Transparency of Goals
|
Shifted our R&D goals from clinical trials to product launch goals to better align with our publicly-stated goals around transforming our development portfolio
|
The PSU component of the LTI program for 2020 includes the following central features:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Performance Share Unit Components
|
Core Metrics
|
|
Relative TSR Gate1
Caps Core Metric Payout % based on rTSR performance
|
|
|
|
|
Alexion's rTSR Percentile Rank
|
Payout Cap
|
|
|
Cumulative Revenue (70%)
|
ð
|
> 50th %ile
|
Core Metric Payout is not adjusted
|
=
|
2020 PSUs (Maximum Payout 200%)
|
50th %ile
|
150%
|
|
40th %ile
|
130%
|
R&D Launch Goals
(30%)
|
25th %ile
|
100%
|
12th %ile
|
74%
|
(1)For each percentile rank below 50th percentile, payout drops by 2% (starting from 150%) until 74% at 12th percentile
Core Metrics
2020 PSUs are earned based on a three-year performance period, January 1, 2020 to December 31, 2022, with the number of PSUs actually earned by the NEO being dependent upon the achievement of goals relating to Alexion's cumulative revenue, weighted 70%, and R&D launch goals, weighted 30%.
R&D Launch Goals:
The Committee, with review and input from our Science & Innovation Committee, established the R&D launch goals for the 2020 PSUs. When establishing the parameters of these R&D launch goals, the Committee referred to the Company’s publicly stated ambition to have 10 product launches from its current portfolio by the end of 2023 through a combination of new assets, new formulas and new indications, including ALXN1840 for Wilson’s Disease and a subcutaneous formulation of ULTOMIRIS. The Committee defined the PSU threshold, target and maximum metrics by reference to those 10 specific publicly identified launches that the Company has established as its 2023 ambition. Given these ambitions are targeted for completion by the end of 2023, the Committee calibrated the number of launches that would result in a defined number of 2020 PSUs being earned to recognize that the thee-year performance period ends on December 31, 2022.
Threshold performance levels must be exceeded for one of the core metrics, cumulative revenue and R&D launch goals, or no component of the core metric PSUs will be earned.
Relative TSR Cap and Peer Group
For 2020, the rTSR cap can limit, but not increase, the percentage of payout determined by the achievement of the Core Metric Targets based on Alexion's three-year rTSR performance compared to the TSR Peer Group. This cap will apply if our performance is at or below the median of peers and for each percentile rank below the 50th percentile, the payout percentage is reduced by 2% starting from the 150% until overall payout hits 74% at the 12th percentile.
The TSR Peer Group, which is the same peer group used for PSUs granted in 2018 through 2020, is the collection of companies within the S&P 400 and 500 Pharmaceuticals, Biotechnology, and Life Sciences Indices, as well as any additional companies in our executive compensation peer group not in these indices, which the Committee viewed as a relevant and appropriate benchmark for stock price performance.
Determination of 2018 Earned PSUs
All of our current NEOs received the PSUs granted by the Company in 2018. These 2018 PSUs were based on the Company’s three-year financial and R&D goals, as well as a relative TSR modifier, described in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 PSU Goals and Achievement
|
Goal
|
Target
|
Achievement
|
Payout
|
Weighting
|
Total
|
Cumulative Revenue
(3-year Goal 2018 - 2020)
|
$13.478B
|
$15.113B
|
200%
(Max Achievement)
|
40%
|
80%
|
Operating Margin
(Cycle End Goal)
|
50.7%
|
55.8%
|
200%
(Max Achievement)
|
60%
|
120%
|
R&D Goals
|
7 goals
|
5 goals
|
45%
(Out of a maximum of 60%)
|
N/A
|
45%
|
Relative TSR Modifier
|
No modification if TSR is between 25th – 75th percentiles
|
62nd percentile
|
0% Modifier
(No impact)
|
N/A
|
0%
|
Total 2018 PSU Payout (= 80% + 120% + 45%)
|
245%
|
Alexion's TSR performance for the PSUs issued in 2018 is measured (January 1, 2018 to December 31, 2020) relative to the median three-year TSR performance of the companies in the S&P 500 Pharmaceuticals, Biotechnology, and Life Sciences Index. The impact of TSR on the 2018 PSUs was determined as follows:
|
|
|
|
|
|
|
|
|
Alexion TSR Performance vs. Peer Group Median
|
ALXN’s Percentile Rank
|
Payout Modification
|
0.8% increase for each 1% that Alexion is above 75th percentile and 0.8% decrease for each 1% that Alexion is below 25th percentile
|
100th
|
+20%
|
98th
|
+18.4%
|
78th
|
+2.4%
|
76th
|
+0.8%
|
No modification if TSR is between 25th and 75th percentiles
|
24th
|
-0.8%
|
22nd
|
-2.4%
|
2nd
|
-18.4%
|
0
|
-20%
|
As of the end of the Performance Period, Alexion’s TSR was 15.96% and percentile rank was 62.1%. Based on this, no TSR modification was made to the award.
Final Earned 2018 PSUs by Recipient:
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
2018 Target Number of TSR PSUs
|
Achievement Percentage
|
2018 Earned Number of PSUs
|
Ludwig N. Hantson
|
66,411
|
245%
|
162,707
|
Aradhana Sarin
|
6,274
|
245%
|
15,371
|
Ellen Chiniara
|
15,496
|
245%
|
37,965
|
Brian M. Goff
|
16,603
|
245%
|
40,677
|
Anne-Marie Law1
|
15,496
|
245%
|
33,746
|
John Orloff
|
16,603
|
245%
|
40,677
|
(1) Ms. Law's earned award amount represents a pro-ration to the end of the month of her Separation Date.
Compensation Governance
Role of the Leadership and Compensation Committee
In accordance with the Committee's charter, the Committee determines the compensation of Alexion's executive officers and approves and evaluates Alexion's compensation programs. The Committee makes its executive compensation decisions based on many factors, including:
•Its review of corporate results against financial and strategic corporate objectives that are established early in the year, assigning a performance score as a percentage of target
•An annual benchmarking exercise to obtain competitive market information and compare each executive's compensation to that of individuals in similar positions at Alexion's selected peer group of companies
•The CEO's assessment of the performance of each of the other executives measured against their objectives
•The CEO's compensation recommendations for the other executives
•The Committee's assessment of the CEO's performance
Role of Executives in 2020 Compensation Decisions
No NEO participated in discussions about or made recommendations with respect to his or her own compensation.
A number of executives typically attended Committee meetings, including our CEO, CFO, Chief Human Experience Officer and Chief Legal Officer.
The CEO, with appropriate staff and executive support, worked with the Committee and its independent compensation advisor to develop compensation recommendations for the NEOs other than himself. The CEO discussed his evaluation of the individual performance of the other NEOs. The Committee, however, was responsible for making all decisions regarding the compensation of the other NEOs.
The Committee was responsible for evaluating and determining the CEO's compensation and worked directly with the independent compensation advisor, as discussed below, with appropriate support from Alexion staff. The CEO was not present when the Committee discussed and approved his compensation.
Role of the Compensation Advisor
In accordance with its charter, the Committee is authorized to engage, retain and terminate consultants to assist it in any aspect of the evaluation of CEO or executive officer compensation, and to approve such consultant's fees and retention terms. The Committee also has authority to obtain advice from internal or external legal and other advisors. In 2020, the Committee retained Frederic W. Cook & Co., Inc. (“FW Cook”) to advise the Committee as its independent compensation advisor.
FW Cook provided analysis, research, data, peer and other market information, survey information and program-design experience in evaluating and assisting in the development of our executive compensation program, as well as our annual cash compensation and LTI programs. The compensation advisor also kept the Committee informed of market trends and developments. Representatives of FW Cook generally attended meetings of the Committee and communicated with the Chief Human Experience Officer and Committee Chairman between meetings. The Committee, however, made all decisions regarding the compensation of our executive officers.
The Committee assesses the independence of FW Cook on an annual basis, taking into account the relevant SEC and Nasdaq independence factors and information provided to the Committee by FW Cook. Based on the information provided and the review conducted by the Committee, the Committee believes that FW Cook is independent and that there are no conflicts of interest that would impact the advice the Committee received from the compensation advisor.
Assessing the Competitive Marketplace and Alexion's Peer Group
FW Cook assisted the Committee in its compensation decisions by, among other things, providing market compensation information reflecting the executive compensation practices and levels across similar positions and similar industry companies, including our peer group, as described below. FW Cook also utilized compensation surveys to assess market information, including compensation surveys prepared by Willis Towers Watson and Radford. The Committee considered the pay and practices at a peer group of biotechnology and pharmaceutical industry companies when making executive compensation decisions.
How the Peer Group is Used
The Committee uses the peer group data in the following ways:
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|
|
Compensation Levels
|
As an input to determine base salary, annual cash incentives, grant date value of long-term incentive awards, and total direct compensation.
|
Program Design
|
As an input for designing our executive compensation programs.
|
Pay-for-Performance
|
To assess whether Alexion’s executive compensation programs are aligned with Company performance.
|
Aggregate Equity Usage
|
To assess incentive plan burn rate, overhang and equity expense.
|
The peer group information is a key reference point for the Committee. The Committee compares the compensation of each NEO to similar positions within the peer group companies. The Committee also takes into account various factors such as the unique characteristics of the individual's position, and any succession and retention considerations. The Committee, however,
does not generally adopt peer group compensation levels as strict boundaries when making its decisions, and will award amounts greater or lower than those referenced by the peer group as they determine that the circumstances require. The Committee chooses the level and mix of compensation elements to determine total direct compensation opportunities in a way that it believes is appropriate to incentivize exceptional performance in accordance with its overall compensation philosophy and our business goals and strategic objectives.
Peer Group Criteria
The Committee develops our peer group based on the criteria listed below, together with input from its independent compensation advisor. While the Committee endeavors to select peer companies that satisfy all of the criteria set forth below, it recognizes that it cannot develop a peer group in which all companies satisfy all of these criteria.
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Consideration
|
Purpose
|
|
|
Industry
|
A peer company should operate in the biotechnology or pharmaceutical industry and appropriately reflect the nature, size, scale and innovation of the business, market demands and influences, and employees and investor perception.
|
Talent Source
|
A peer company should operate in the same industry and should compete with Alexion for talent.
|
Size
|
Generally, a peer company should be in the same industry as Alexion, of similar size (e.g., revenues, market capitalization and number of employees), as well as operating businesses of a similar commercial complexity. Given the nature of the biotechnology and pharmaceutical industry, some peer companies will not meet this criteria but are balanced in size by other peers.
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Global Presence
|
A peer company should conduct global commercial operations. We look at the percent of revenues attributed to non-U.S. sales and consider companies with worldwide operations.
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Therapeutic Products
|
A peer company should be focused on the development and commercialization of therapeutic products for orphan and rare diseases.
|
Peer Group Selection
The Committee and FW Cook analyzed the peer group it used in 2019, evaluating it in light of past and anticipated industry consolidations. The Committee considered each company in the 2019 peer group and additional relevant companies in its review of the peer group for 2020. The peer group that was used for 2020 compensation decisions included the same 13 peers, with the removal of Celgene Corporation and Shire PLC due to merger and acquisition activities. The peer group for 2020 is as follows:
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2020 Peer Group
|
AbbVie Inc.
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BioMarin Pharmaceutical, Inc.
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Seattle Genetics, Inc.
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Alkermes plc
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Gilead Sciences, Inc.
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United Therapeutics Corporation
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Allergan plc
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Incyte Corporation
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Vertex Pharmaceuticals, Inc.
|
Amgen Inc.
|
Jazz Pharmaceuticals plc
|
|
Biogen Inc.
|
Regeneron Pharmaceuticals, Inc.
|
|
Termination and Change of Control-Based Compensation
We provide severance payments and other benefits to our executives under written employment agreements if their employment is terminated without cause or in certain other instances, including in connection with a change of control. In February 2016, the Committee approved new executive employment agreements, which all of our NEOs are party to, to among other things, eliminate all 280G gross-up provisions and increase cash severance benefits based on market practices. Severance provisions related to a change of control assist in retaining high quality executives and keeping them focused on their responsibilities during any period in which a change of control may be contemplated or pending. We also provide for accelerated vesting of outstanding equity awards upon a change of control for awards granted prior to January 1, 2016. In 2016, the Committee eliminated automatic single-trigger equity acceleration upon a change of control. With respect to awards granted in 2016 and thereafter, our executive employment agreements now provide for double-trigger acceleration of vesting only in the event of a qualifying termination of employment following a change of control. More details on the severance payments and benefits our NEOs are entitled to receive are provided under “Potential Payments Upon Termination or Change of Control” below.
Departure of Ms. Law
On August 25, 2020, we announced that Anne-Marie Law, the Company’s Executive Vice President, Chief Human Experience Officer, had left the Company effective as of August 21, 2020. In connection with Ms. Law’s departure, the Company and Ms. Law entered into a Confidential Release and Separation Agreement effective as of September 26, 2020 (the “Separation Agreement”). Pursuant to the terms of the Separation Agreement, the Company has agreed to provide certain benefits to Ms. Law, including the following: (i) cash payments equal to 18-months’ salary and target bonus, or approximately $1,860,863, and 18-months of health insurance premiums paid by the Company after deducting applicable taxes and withholding, or approximately $44,709; (ii) acceleration of vesting of all outstanding time-based restricted share unit awards that were at least 50% vested as of August 21, 2020; and (iii) a pro-rated number of outstanding
performance share unit awards (prorated based on the number of months Ms. Law was employed during each performance period) will remain outstanding and eligible to vest in accordance with their terms at the end of the applicable performance period. In order to receive the foregoing benefits, Ms. Law executed a general release in favor of the Company and continues to be bound by covenants contained in her employment agreement, including covenants related to confidentiality, non-competition, non-solicitation and non-disparagement. The amounts attributable to the salary, target bonus and health premiums paid pursuant to the Separation Agreement are reflected in the Summary Compensation Table below in 2020.
Personal Benefits
Our NEOs are eligible for the benefit programs we provide to all employees, such as medical, dental, vision, life and disability insurance benefits. Our NEOs are eligible to participate in our tax-qualified 401(k) plan on the same basis as other U.S. eligible employees. We also provide relocation benefits and other limited perquisites to executives that are also available to certain other employees. These other perquisites we provided to the NEOs in 2020 are disclosed in the “Summary Compensation Table” below.
Stock Ownership Guidelines
Our executives and directors are subject to stock ownership guidelines. Shares owned by the individual, unvested restricted stock and unvested RSUs count towards these ownership requirements. Unearned PSUs do not count towards these ownership guidelines. Directors and officers are required to meet these guidelines within five years of becoming subject to them.
Our current policy requires Alexion's executive officers to own shares with a value equal to a specific multiple of such executive's base salary, and directors with a value equal to a multiple of the annual cash retainer.
All of our executives and directors currently satisfy the guidelines.
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|
|
|
|
|
Officer Level
|
Guideline Multiple of Base Salary or Annual Retainer
|
Chief Executive Officer
|
6x
|
Executive Vice Presidents and Senior Vice Presidents reporting to the CEO
|
3x
|
Other Senior Vice Presidents
|
1x
|
Directors
|
5x
|
Anti-hedging and Anti-pledging Policy
Our insider trading policy prohibits all directors and employees, including our executives, from pledging or engaging in hedging or similar transactions in Alexion's stock, such as prepaid variable forwards, equity swaps, collars, puts, calls, and short sales. These types of transactions are prohibited because otherwise they would permit a director, officer or employee to continue to own Alexion’s securities but without the risks and rewards of ownership, which potentially separates the holder’s interests from those of other Alexion stockholders.
Recoupment Policy
We have adopted an executive compensation recoupment policy, or “clawback,” that requires our independent directors to consider whether to seek reimbursement of any bonus or incentive (whether cash or equity) awarded to a Section 16 officer if and to the extent: (a) the amount of the bonus or incentive (whether cash or equity) compensation was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement, (b) the executive engaged in intentional misconduct that caused or partially caused the need for the restatement, and (c) the amount of the bonus or incentive (whether cash or equity) compensation that would have been awarded to the executive had the financial results been properly reported would have been lower than the amount actually awarded. Each NEO identified herein and currently employed by the Company is also a Section 16 officer and is subject to the terms and conditions of this policy.
Compensation Risk Assessment
The Committee oversees an annual risk assessment of the Company’s compensation programs to determine whether such programs are reasonably likely to have a material adverse effect on the Company. For 2020, the Committee concluded that the Company’s compensation programs were appropriately balanced to mitigate compensation-related risk with cash and stock elements, financial and non-financial goals, and short-term and long-term rewards. The Company also has policies to mitigate compensation-related risk, including stock ownership guidelines, clawback provisions, and prohibitions on employee pledging and hedging activities. Further, the Company’s policies on ethics and compliance along with its internal controls also mitigate against unnecessary or excessive risk taking by employees. Finally, Committee reviews and approves the design and goals under our annual bonus plan and long-term incentive program and approves each individual executive officer’s compensation amounts and mix. The Committee also must certify that the annual bonus plan metrics and the long-term performance equity incentive program metrics are met before any amounts are paid to the NEOs.
Section 162(m)
Under Section 162(m) of the Internal Revenue Code, publicly held corporations generally may not deduct compensation in excess of $1 million paid to certain executive officers, subject to limited transition relief for certain arrangements in place as of November 2, 2017.
The Committee believes that its primary responsibility is to provide a compensation program that attracts, engages, retains and rewards the executive officers necessary for the Company’s success, as described above. As a result, we currently and may in the future pay compensation that is not fully deductible, in whole or in part, under Section 162(m) in order to ensure competitive levels of total compensation for our executive officers and when we otherwise view such compensation as consistent with our compensation policies.
Report of Leadership and Compensation Committee
The Committee of the Board reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our executives and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Amendment No. 1.
The Leadership and Compensation Committee
Jack T. Mollen, Chairman
David Brennan
Christopher J. Coughlin
Deborah Dunsire, M.D.
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|
|
Summary Compensation Table
|
The following table sets forth information regarding the compensation awarded to, earned by or paid to each of our NEOs during the fiscal years ended December 31, 2020, and (where applicable) 2019 and 2018.
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|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus ($)
|
Stock
Awards
($) (4)
|
Option Awards
($)
|
Non-Equity Incentive Plan Compen-sation
($)(5)
|
All Other Compen-sation
($) (6)
|
Total
($)
|
Ludwig Hantson
|
2020
|
1,300,000
|
—
|
13,670,359
|
—
|
2,913,300
|
35,600
|
17,919,259
|
Chief Executive Officer
|
2019
|
1,250,000
|
—
|
15,243,634
|
—
|
2,430,000
|
24,350
|
18,947,984
|
2018
|
1,200,000
|
—
|
12,385,168
|
—
|
2,880,000
|
25,082
|
16,490,250
|
Aradhana Sarin (1)
|
2020
|
800,000
|
—
|
3,264,783
|
—
|
929,600
|
21,600
|
5,015,983
|
Executive Vice President, Chief Financial Officer
|
2019
|
651,764
|
—
|
3,380,763
|
—
|
813,011
|
31,604
|
4,877,142
|
|
|
|
|
|
|
|
|
Ellen Chiniara (2)
|
2020
|
710,700
|
—
|
3,117,711
|
—
|
825,833
|
28,110
|
4,682,354
|
Executive Vice President, Chief Legal Officer and Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Goff
|
2020
|
799,200
|
—
|
3,395,051
|
—
|
928,670
|
35,215
|
5,158,136
|
Executive Vice President, Chief Commercial and Global Operations Officer
|
2019
|
740,000
|
—
|
3,863,694
|
—
|
923,076
|
20,240
|
5,547,010
|
2018
|
695,250
|
—
|
3,096,323
|
—
|
973,350
|
111,873
|
4,876,796
|
Anne-Marie Law (3)
|
2020
|
491,178
|
—
|
8,386,758
|
—
|
—
|
1,993,052
|
10,870,988
|
Former Executive Vice President, Chief Human Experience Officer
|
2019
|
695,000
|
—
|
3,622,303
|
—
|
788,130
|
33,528
|
5,138,961
|
2018
|
650,000
|
—
|
2,889,885
|
—
|
910,000
|
846,604
|
5,296,489
|
John Orloff
|
2020
|
831,600
|
—
|
3,395,051
|
—
|
966,319
|
34,147
|
5,227,117
|
Executive Vice President, Head of Research and Development
|
2019
|
770,000
|
—
|
3,863,694
|
—
|
960,498
|
32,550
|
5,626,742
|
2018
|
695,250
|
—
|
3,096,323
|
—
|
973,350
|
98,679
|
4,863,602
|
(1)Dr. Sarin joined the Company in November 2017 as Senior Vice President, Business Development and Corporate Strategy and from February 2019 to October 2019, she served as Executive Vice President, Chief Strategy and Business Officer and Chief of Staff to the CEO. On September 17, 2019, the Board of Directors appointed Dr. Sarin as Executive Vice President and Chief Financial Officer, effective in October 2019. Dr. Sarin's annual base salary for 2019 as Chief Strategy and Business Officer and Chief of Staff to the CEO was $600,000, retroactive to January 2019, until her appointment as Executive Vice President and Chief Financial Officer, at which time her annual base salary was increased to $800,000, commensurate with her new position. No amounts are reported for Dr. Sarin for 2018 because she was not a named executive officer for that year.
(2)No amounts are reported for Ms. Chiniara for 2018 or 2019 because she was not a named executive officer for either of those years.
(3)Ms. Law served as the Company's Executive Vice President and Chief Human Experience Officer through August 21, 2020. The amount of her annual base salary of $729,750 was pro-rated to reflect that she was
employed for only a portion of 2020. In connection with Ms. Law's departure, the Company and Ms. Law entered into a separation agreement. As of the date of her departure, vesting of RSUs granted in 2017 and 2018 was accelerated and she forfeited unvested 2019 and 2020 RSUs. PSUs granted in 2018, 2019 and 2020 will be pro-rated to the end of the month of separation and will remain outstanding and continue to vest based on final performance results upon certification at the end of the performance periods. Amounts reported as Stock Awards for Ms. Law include incremental fair value of $5,638,071 associated with the modification of Ms. Law's outstanding 2018, 2019 and 2020 PSUs in connection with her departure from the Company pursuant to her separation agreement.
(4)Amounts represent the grant date fair value of stock awards granted to the named executive officer in each of 2020, 2019 and 2018 (where applicable), calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("FASB ASC Topic 718"), disregarding the effect of estimated forfeitures. See Notes 1 and 13 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for details as to the assumptions used to determine the fair value of the equity awards granted in 2020. See our audited consolidated financial statements in our Annual Reports on Form 10-K for the years ended December 31, 2019 and 2018 for details as to the assumptions used to determine the fair value of the awards granted in 2019 and 2018, respectively. The amount reported in the "Stock Awards" column includes the grant date fair value of RSUs and PSUs, the terms of which are more fully discussed in the Compensation Discussion and Analysis above. For PSUs, the amounts represent the grant date fair value based on the probable outcome of the performance conditions at the grant date. For 2020, the grant date fair value of PSUs was $5,403,048 for Dr. Hantson, $1,329,979 for Dr. Sarin, Mr. Goff and Dr. Orloff, and $1,246,847 for Ms. Chiniara and Ms. Law. The grant date fair value of these PSUs, if the highest level of performance conditions were achieved, is $12,454,240 for Dr. Hantson, $3,065,654 for Dr. Sarin, Mr. Goff and Dr. Orloff, and $2,874,032 for Ms. Chiniara and Ms. Law.
In addition, the 2020 amounts reported in the "Stock Awards" column also include the incremental fair value associated with the modification of the outstanding 2019 PSUs that occurred in 2020. Following the acquisition of Portola Pharmaceuticals, Inc (Portola) in July 2020, the Compensation Committee approved a modification to the revenue and operating margin targets and payout curves to include the results of the Portola business. See page 31 of the CD&A for further details of this modification. This modification was accounted for in accordance with FASB ASC Topic 718. The incremental fair value resulting from the modification of the outstanding 2019 PSUs, based on the probable outcome of the performance conditions at the modification date, was determined to be $4,111,091 for Dr. Hantson, $911,757 for Dr. Sarin and Ms. Chiniara, $542,734 for Ms. Law and $1,042,025 for Mr. Goff and Dr. Orloff.
(5)Amounts represent the annual incentive bonus earned by each of the NEOs for services performed in 2020, 2019 and 2018 (where applicable).
(6)The amounts within the All Other Compensation column for 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
Company Retirement Contributions
($) (7)
|
Non-Qualified Deferred Compensation Match
($)
|
Severance
($) (8)
|
Other
($) (9)
|
Total
|
Ludwig Hantson
|
17,100
|
17,100
|
—
|
1,400
|
35,600
|
Aradhana Sarin
|
17,100
|
4,500
|
—
|
—
|
21,600
|
Ellen Chiniara
|
17,100
|
8,900
|
—
|
2,110
|
28,110
|
Brian Goff
|
17,100
|
17,715
|
—
|
400
|
35,215
|
Anne-Marie Law
|
17,100
|
8,900
|
1,965,572
|
1,480
|
1,993,052
|
John Orloff
|
17,100
|
15,297
|
—
|
1,750
|
34,147
|
(7) Amounts represent employer matching contributions to the Alexion 401(K) plan related to employee 2020 contributions.
(8) Amounts represent cash severance payments and the value of the outplacement services to which Ms. Law became entitled pursuant to her separation agreement with the Company. This amount reflects cash payments equal to 18-months’ salary and target bonus, or approximately $1,860,863, 18-months of health insurance premiums paid after deducting applicable taxes and withholding, or approximately $44,709, and $60,000 of outplacement assistance fees.
(9) Amounts in this column for fiscal year 2020 represent commuter and parking benefits.
CEO Pay Ratio
We have estimated the median of the 2020 annual total compensation of our employees, other than our Chief Executive Officer, to be $250,651. The 2020 annual total compensation of Dr. Hantson was $17,919,259 (this is same amount reported in the Total column reported in the Summary Compensation Table included above). As a result, the estimated ratio of the annual total compensation of our Chief Executive Officer to the estimated median of the annual total compensation of our other employees was approximately 71 to 1. We believe that the pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology described below.
Overview of Methodology and Assumptions
Alexion is a global company, with employees in 29 countries, approximately half of whom are located outside of the United States. As of December 31, 2020, Alexion’s workforce consisted of approximately 3,837 full-time world-wide employees, including hourly employees.
In determining the employee population to be used to calculate the compensation of the median employee, we included employees in all countries. As a result, the employee population that we used for purposes of determining the compensation of our median employee was 3,837 employees. We selected December 31, 2020, the last day of our fiscal year, as the date upon which we would identify the “median employee.” Given our population changes over the last two years and in accordance with SEC rules, we identified a new median employee for use in our 2020 CEO pay ratio calculations.
Earnings of our employees outside the U.S. were converted to U.S. dollars using the currency exchange rates used for organizational planning purposes. We did not make any cost of living adjustments. To identify the “median employee,” we utilized 2020 base salary or base rate of pay (annualized in the case of employees who were not employed for the full fiscal year), target annual cash incentive award and target annual LTI award for our consistently applied compensation measure because we believe that this measure reasonably reflects the annual compensation of our employees.
With respect to the SEC rules for identifying the median of the annual total compensation of our employees and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio for our Company, as other companies have headquarters offices in different countries, have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.
We invest in our employees at all levels in the Company by rewarding performance that balances risk and reward, empowering professional growth and development and by offering affordable benefits and programs that meet the diverse needs of our employees.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants Of Plan-Based Awards In Fiscal 2020
|
The following table sets forth information regarding plan-based awards made to each of our NEOs during the fiscal year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
|
Estimated Future Payouts Under Equity Incentive Plan Awards
|
All Other Stock Awards:
|
All Other Option Awards:
|
|
|
Name
|
Grant Date
|
|
Target
($)
|
Maximum ($)
|
Target
(#)
|
Maximum (#)
|
Number of shares of stock or units
(#)
|
Number of Securities Underlying Options (#)
|
Exercise or Base Price of Option Awards ($/Sh)
|
Grant Date Fair Value of Stock and Option Awards
($) (4)
|
Ludwig Hantson
|
2/28/20
|
(1)
|
1,755,000
|
3,510,000
|
—
|
—
|
—
|
—
|
—
|
—
|
2/28/20
|
(2)
|
—
|
—
|
—
|
—
|
44,201
|
—
|
—
|
4,156,220
|
|
2/28/20
|
(3)
|
—
|
—
|
82,087
|
164,174
|
—
|
—
|
—
|
5,403,048
|
|
|
(6)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
4,111,091
|
Aradhana Sarin
|
2/28/20
|
(1)
|
560,000
|
1,120,000
|
—
|
—
|
—
|
—
|
—
|
—
|
2/28/20
|
(2)
|
—
|
—
|
—
|
—
|
10,880
|
—
|
—
|
1,023,046
|
|
2/28/20
|
(3)
|
—
|
—
|
20,206
|
40,412
|
—
|
—
|
—
|
1,329,979
|
|
|
(6)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
911,758
|
Ellen Chiniara
|
2/28/20
|
(1)
|
497,490
|
994,980
|
—
|
—
|
—
|
—
|
—
|
—
|
|
2/28/20
|
(2)
|
—
|
—
|
—
|
—
|
10,200
|
—
|
—
|
959,106
|
|
2/28/20
|
(3)
|
—
|
—
|
18,943
|
37,886
|
—
|
—
|
—
|
1,246,847
|
|
|
(6)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
911,758
|
Brian Goff
|
2/28/20
|
(1)
|
559,440
|
1,118,880
|
—
|
—
|
—
|
—
|
—
|
—
|
2/28/20
|
(2)
|
—
|
—
|
—
|
—
|
10,880
|
—
|
—
|
1,023,046
|
|
2/28/20
|
(3)
|
—
|
—
|
20,206
|
40,412
|
—
|
—
|
—
|
1,329,979
|
|
|
(6)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1,042,026
|
Anne-Marie
|
2/28/20
|
(1)
|
510,825
|
1,021,650
|
—
|
—
|
—
|
—
|
—
|
—
|
Law (5)
|
2/28/20
|
(2)
|
—
|
—
|
—
|
—
|
10,200
|
—
|
—
|
959,106
|
|
2/28/20
|
(3)
|
—
|
—
|
18,943
|
37,886
|
—
|
—
|
—
|
1,246,847
|
|
|
(5)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
5,638,071
|
|
|
(6)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
542,734
|
John Orloff
|
2/28/20
|
(1)
|
582,120
|
1,164,240
|
—
|
—
|
—
|
—
|
—
|
—
|
2/28/20
|
(2)
|
—
|
—
|
—
|
—
|
10,880
|
—
|
—
|
1,023,046
|
|
2/28/20
|
(3)
|
—
|
—
|
20,206
|
40,412
|
—
|
—
|
—
|
1,329,979
|
|
|
(6)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1,042,026
|
(1) The amounts represent the annual cash incentive award target and maximum percentage payout amounts for the NEO for 2020 multiplied by such individual's base salary. See "Annual Cash Incentive Awards" in the CD&A. Actual amounts paid to the NEO for 2020 are included in the "Non-Equity Incentive Plan Compensation" column under the "Summary Compensation Table" above. The maximum amount a NEO may earn is 200% of target bonus amount. The threshold values for this grant are excluded from the table as the minimum award value that could be received is zero.
(2) The amount includes the number of shares of common stock underlying awards of RSUs granted to the NEO in 2020. These RSUs provide by their terms for ratable vesting on an annual basis over a four-year period.
(3) The amount represents the estimated payouts for PSUs granted to the NEO in 2020. The target and maximum achievement amounts include shares that may be earned over the vesting period for the achievement of cumulative revenue goals and research and development (R&D) launch goals during the performance period. In addition, the relative TSR cap can limit, but not increase, the payout to 74%. The threshold values for these grants are excluded from the table above as the minimum award value that
could be received is zero. To the extent earned based on performance, these 2020 PSUs cliff vest following the end of a three-year performance period.
(4) The amount represents the grant date fair value of RSUs and PSUs granted in 2020 calculated in accordance with FASB ASC Topic 718, disregarding the effect of estimated forfeitures. For PSUs, the amounts represent the grant date fair value based on the probable outcome of the performance conditions on the grant date. See footnote 4 to the “Summary Compensation Table” above for the amounts included with respect of PSUs and the amounts that would be included if the highest level of performance conditions were achieved. See Notes 1 and 13 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for details as to the assumptions used to determine the fair value of the awards.
(5) The amounts represents the incremental fair value of $5,638,071 associated with the modification of Ms. Law's outstanding 2018, 2019 and 2020 PSUs in connection with her departure from the Company on August 21, 2020 pursuant to her separation agreement. Ms. Law's unvested RSUs granted in 2020 were forfeited upon her departure on August 21, 2020. PSUs granted in 2020 will be pro-rated to the end of the month of separation and will remain outstanding and continue to vest based on final performance results upon certification at the end of the performance period.
(6) The amount represents the incremental fair value associated with the Portola-related modification of the outstanding 2019 PSUs based on the probable outcome of the performance conditions at the modification date. See footnote 4 to the "Summary Compensation Table" above for further details.
Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
We have entered into employment agreements with each of our NEOs. The material terms of the employment agreements with Dr. Hantson. Dr. Sarin, Ms. Chiniara, Mr. Goff, and Dr. Orloff are described below. The employment agreements also provide for certain payments and benefits upon terminations of employment, as described below under “-Potential Payments Upon Termination or Change of Control.” The terms of Ms. Law's separation agreement in "Termination and Change of Control-Based Compensation-Departure of Ms. Law" in the CD&A.
Ludwig Hantson
On March 27, 2017, Dr. Hantson entered into an employment agreement with the Company upon his appointment as Chief Executive Officer. The agreement includes a three-year term, which automatically extends at the end of such term for additional one-year periods unless 60 days prior notice is given by either party (neither party provided such notice prior to the commencement of such 60 day period in 2020 or 2021). The agreement entitles Dr. Hantson to an annual base salary of $1,200,000, which is subject to increase in the discretion of the Company. The agreement also entitles Dr. Hantson to a target annual cash incentive award of 120% of his annual base salary, with the actual amount of the bonus earned determined by the Board or the Committee and paid in accordance with the Company’s management incentive bonus plan. Under the agreement, Dr. Hantson is eligible to receive stock-based awards under the Company’s equity incentive plan in the discretion of the Board or the Committee and to participate in the Company’s employee benefit plans as in effect for employees generally. The agreement provides standard indemnification coverage for Dr. Hantson, as well as recoupment of any incentive-based compensation in accordance with the Company's recoupment policy.
Aradhana Sarin
On September 17, 2019, Dr. Sarin entered into a new employment agreement with the Company. The agreement provides for the appointment of Dr. Sarin as Executive Vice President, Chief Financial Officer, which was effective on the date the Company filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. The agreement includes a three-year term, which automatically extends at the end of such term for additional one-year periods unless 60 days prior notice is given by either party. The agreement entitles Dr. Sarin to an annual base salary of $800,000, which is subject to increase in the discretion of the Company. The agreement also entitles Dr. Sarin to a target annual cash incentive award of 70% of her annual base salary, with the actual amount of the bonus earned to be determined by the Board or the Committee and paid in accordance with the Company's management incentive bonus plan. Under the agreement, Dr. Sarin is eligible to receive stock-based awards under the Company's equity incentive plan in the discretion of the Board or the Committee and to participate in the Company's employee benefit plans as in effect for employees generally. Dr. Sarin did not receive stock-based awards in connection with her appointment as Executive Vice President, Chief Financial Officer. The agreement provides standard indemnification coverage for Dr. Sarin, as well as recoupment of any incentive-based compensation in accordance with the Company's recoupment policy.
Ellen Chiniara
On January 29, 2018, Ms. Chiniara entered into an employment agreement with the Company. The agreement includes a three-year term, which automatically extends at the end of such term for additional one-year periods unless 60 days prior notice is given by either party (neither party provided such notice prior to the commencement of such 60 day period in 2021). The agreement entitles Ms. Chiniara to an annual base salary of $660,000, which is subject to increase in the discretion of the Company. The agreement also entitles Ms. Chiniara to a target annual cash incentive award of 70% of her annual base salary, with the actual amount of the bonus earned determined by the Board or the Committee and paid in accordance with the Company’ s management incentive bonus plan. Under the agreement, Ms. Chiniara is eligible to receive stock-based awards under the Company’s equity incentive plan in the discretion of the Board or the Committee and to participate in the Company’s employee benefit plans as in effect for employees generally. The agreement provides standard indemnification coverage for Ms. Chiniara, as well as recoupment of any incentive-based compensation in accordance with the Company's recoupment policy.
Brian Goff
On June 1, 2017, Mr. Goff entered into an employment agreement with the Company. The agreement includes a three-year term, which automatically extends at the end of such term for additional one-year periods unless 60 days prior notice is given by either party (neither party provided such notice prior to the commencement of such 60 day period in 2020). The agreement entitles Mr. Goff to an annual base salary of $675,000, which is subject to increase in the discretion of the Company. The agreement also entitles Mr. Goff to a target annual cash incentive award of 70% of his annual base salary, with the actual amount of the bonus earned determined by the Board or the Committee and paid in accordance with the Company’ s management incentive bonus plan. Under the agreement, Mr. Goff is eligible to receive stock-based awards under the Company’s equity incentive plan in the discretion of the Board or the Committee and to participate in the Company’s employee benefit plans as in effect for employees generally. The agreement provides
standard indemnification coverage for Mr. Goff, as well as recoupment of any incentive-based compensation in accordance with the Company's recoupment policy.
John Orloff
On June 5, 2017, Dr. Orloff entered into an employment agreement with the Company. The agreement includes a three-year term, which automatically extends at the end of such term for additional one-year periods unless 60 days prior notice is given by either party (neither party provided such notice prior to the commencement of such 60 day period in 2020). The agreement entitles Dr. Orloff to an annual base salary of $675,000, which is subject to increase in the discretion of the Company. The agreement also entitles Dr. Orloff to a target annual cash incentive award of 70% of his annual base salary, with the actual amount of the bonus earned determined by the Board or the Committee and paid in accordance with the Company’s management incentive bonus plan. Under the agreement, Dr. Orloff is eligible to receive stock-based awards under the Company’s equity incentive plan in the discretion of the Board or the Committee and to participate in the Company’s employee benefit plans as in effect for employees generally. The agreement provides standard indemnification coverage for Dr. Orloff, as well as recoupment of any incentive-based compensation in accordance with the Company's recoupment policy.
Fiscal Year 2020 Equity Awards
All of the PSUs and RSUs disclosed in the Grants of Plan-Based Awards table were granted under our 2017 Incentive Plan. Our 2017 Incentive Plan was approved by shareholders in May 2017. Subject to the terms of the applicable incentive plan and the RSU award agreements, RSU awards are generally scheduled to vest as to 25% of the shares subject to the RSU award on each of the first four anniversaries of the grant date (such that all shares subject to the RSU will be vested four years from the date of grant), generally subject to the continued employment of the applicable NEO with the Company through the applicable vesting date. Subject to the terms of the applicable incentive plan and the PSU award agreements, PSUs are earned if all of the applicable performance goals are satisfied (such goals are based on three-year performance metrics) and, if the performance goals are satisfied and the PSUs are earned, the shares will "cliff" vest on the third anniversary of the date of grant of the PSUs, generally subject to the continued employment of the applicable NEO with the Company through the applicable vesting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards At 2020 Fiscal Year-End
|
The following table sets forth information regarding equity awards held by our NEOs as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
|
|
Number of Securities Underlying Unexercised Options
|
|
|
|
|
|
|
Equity Incentive Plan Awards:
|
Name
|
Grant Date
|
Exercisable (#)
|
Unexercisable (#)
|
|
Option Exercise Price
($)
|
Option Expiration
Date
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
|
Market Value of Shares or Units of Stock That Have Not Vested
($)(1)
|
Number of Unearned Shares, Units, or Other Rights That Have Not Vested
(#)
|
|
Market or Payout Value of Unearned Shares or Units or Other Rights of Stock That Have Not Vested
($) (1)
|
Ludwig Hantson
|
03/27/17
|
53,214
|
3,548
|
(2)
|
118.83
|
03/27/27
|
7,182
|
(3)
|
1,122,116
|
—
|
|
—
|
02/28/18
|
—
|
—
|
|
—
|
—
|
8,940
|
(4)(5)
|
1,396,786
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
18,598
|
(4)(5)
|
2,905,752
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
69,082
|
(6)
|
10,793,371
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
33,150
|
(4)(5)
|
5,179,356
|
—
|
|
—
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
82,087
|
(6)
|
12,825,272
|
Aradhana Sarin
|
11/29/17
|
—
|
—
|
|
—
|
—
|
2,910
|
(4)
|
454,658
|
—
|
|
—
|
02/28/18
|
—
|
—
|
|
—
|
—
|
844
|
(4)(5)
|
131,867
|
—
|
|
—
|
02/28/19
|
—
|
—
|
|
—
|
—
|
4,124
|
(4)(5)
|
644,334
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
15,321
|
(6)
|
2,393,753
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
8,160
|
(4)(5)
|
1,274,918
|
—
|
|
—
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
20,206
|
(6)
|
3,156,985
|
Ellen Chiniara
|
02/28/18
|
—
|
—
|
|
—
|
—
|
2,086
|
(4)(5)
|
325,917
|
—
|
|
—
|
02/28/19
|
—
|
—
|
|
—
|
—
|
4,124
|
(4)(5)
|
644,334
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
15,321
|
(6)
|
2,393,753
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
7,650
|
(4)(5)
|
1,195,236
|
—
|
|
—
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
18,943
|
(6)
|
2,959,654
|
Brian Goff
|
06/07/17
|
19,032
|
2,718
|
(2)
|
100.14
|
06/07/27
|
3,679
|
(4)
|
574,807
|
—
|
|
—
|
02/28/18
|
—
|
—
|
|
—
|
—
|
2,235
|
(4)(5)
|
349,196
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
4,714
|
(4)(5)
|
736,515
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
17,510
|
(6)
|
2,735,762
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
8,160
|
(4)(5)
|
1,274,918
|
—
|
|
—
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
20,206
|
(6)
|
3,156,985
|
Anne-Marie Law (7)
|
02/28/18
|
—
|
—
|
|
—
|
—
|
33,746
|
(7)
|
5,272,475
|
—
|
|
—
|
02/28/19
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
9,120
|
(7)
|
1,424,909
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
4,210
|
(7)
|
657,770
|
John Orloff
|
06/07/17
|
—
|
—
|
|
—
|
—
|
6,241
|
(4)
|
975,094
|
—
|
|
—
|
02/28/18
|
—
|
—
|
|
—
|
—
|
2,235
|
(4)(5)
|
349,196
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
4,714
|
(4)(5)
|
736,515
|
—
|
|
—
|
|
02/28/19
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
17,510
|
(6)
|
2,735,762
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
8,160
|
(4)(5)
|
1,274,918
|
—
|
|
—
|
|
02/28/20
|
—
|
—
|
|
—
|
—
|
—
|
|
—
|
20,206
|
(6)
|
3,156,985
|
(1)The market value of the stock awards is determined by multiplying the number of shares subject to such award times $156.24, which was the closing price of the Company's common stock as of December 31, 2020, the last business day of 2020.
(2)Award of options that vest over a four-year period, with 25% vesting on the first anniversary of the date of grant and 6.25% vesting every three months thereafter, generally subject to continued employment or other service with the Company.
(3)Award of RSUs that vested 25% on December 31, 2017, 25% on December 31, 2018, 25% on the third anniversary of the grant date and will vest 25% on the fourth anniversary of the grant date, generally subject to continued employment or other service with the Company.
(4)RSU awards that vest over a four-year period in equal annual installments on each anniversary of the date of grant, generally subject to continued employment or other service with the Company.
(5)In December 2020, the Committee accelerated vesting of tranches of RSUs granted in 2018, 2019 and 2020 scheduled to vest in February 2021 to December 2020.
(6)PSU awards granted in 2019 and 2020 are eligible to be earned based on performance during the performance period ending on December 31, 2021 and December 31, 2022, respectively. To the extent earned based on performance, the PSUs will vest on the third anniversary of the grant date, generally subject to continued employment or other service with the Company. Except as noted below, amounts have been reported in this table assuming target level achievement of performance goals.
With respect to the PSUs granted in 2018, no amounts have been reflected as outstanding as vesting of the earned shares was accelerated to December 2020 at a payout of 245% of target, which reflected actual performance for the full performance period ending December 31, 2020. Refer to the "Option Exercises And Stock Vested For Fiscal 2020" table below for further information.
With respect to the PSUs granted in 2019, an additional 15% of the target award has been earned as of December 31, 2020 based on the achievement of R&D milestones.
(7)Ms. Law's separation agreement provided for the accelerated vesting upon her August 21, 2020 departure of RSUs granted in 2017 and 2018 while unvested RSUs granted in 2019 and 2020 were forfeited. Ms. Law's PSUs granted in 2018, 2019 and 2020 will be pro-rated to the end of the month of separation and will be eligible to vest based on achievement of the applicable performance criteria upon the Committee's certification of the performance results following the applicable performance period.
$5,272,475 reported for Ms. Law's 2018 PSUs represent PSUs actually earned for the performance period ending December 31, 2020 which will vest on February 28, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Exercises And Stock Vested For Fiscal 2020
|
The following table shows the vesting of RSUs and PSUs during the year ended December 31, 2020 for each of the NEOs. None of the NEOs exercised stock options during 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
|
Number of Shares Acquired on Exercise
(#)
|
|
Value Realized on Exercise
($)
|
Number of Shares Acquired on Vesting
(#) (1)
|
|
Value Realized on Vesting
($)(2)
|
Ludwig Hantson
|
|
—
|
|
—
|
249,171
|
|
35,963,305
|
Aradhana Sarin
|
|
—
|
|
—
|
26,816
|
|
3,952,098
|
Ellen Chiniara
|
|
—
|
|
—
|
48,813
|
|
7,448,382
|
Brian Goff
|
|
—
|
|
—
|
61,561
|
|
8,990,872
|
Anne-Marie Law
|
|
—
|
|
—
|
19,952
|
|
2,188,745
|
John Orloff
|
|
—
|
|
—
|
58,822
|
|
8,734,513
|
(1)Includes RSUs and PSUs that vested in 2020 as follows:
–The number of shares subject to RSUs that vested in 2020: Dr. Hantson: 54,712, Dr. Sarin: 11,445, Ms. Chiniara: 10,848, Mr. Goff: 15,584, Ms. Law: 19,952 and Dr. Orloff: 18,145. This is inclusive of February 2021 vesting accelerated to December 2020 as follows: Dr. Hantson: 29,290, Dr. Sarin: 5,627, Ms. Chiniara: 6,698 and Mr. Goff and Dr. Orloff: 7,312. With respect to Ms. Law, this is also inclusive of 9,914 shares for which vesting was accelerated in connection with her separation agreement.
–One third of the PSUs earned for the performance period ending December 31, 2017 vested in 2020 as follows: Dr. Hantson: 31,752 and Mr. Goff: 5,300.
–February 2021 vesting relating to PSUs earned based on actual performance for the performance period ending December 31, 2020 was accelerated to December 2020 as follows: Dr. Hantson: 162,707, Dr. Sarin: 15,371, Ms. Chiniara: 37,965, Mr. Goff and Dr. Orloff: 40,677.
(2) Amounts reflect the aggregate dollar amount realized upon vesting by multiplying the number of shares of stock vested by the closing price of the Company's common stock on the vesting date.
Nonqualified Deferred Compensation
Alexion sponsors a nonqualified deferred compensation plan (NQDC Plan) which allows certain highly compensated employees, including our NEOs, to make voluntary deferrals of up to 80% of their base salary and up to 80% of their annual cash incentive award. The NQDC Plan is designed to work in conjunction with the 401(k) plan and provides for a total combined employer match of up to 6% of an employee's eligible earnings, up to the IRS annual specified contribution limits. The plan provides for immediate vesting of the match consistent with our immediate vesting of the Company match provided under our 401(k) plan. Notional accounts are maintained for each participant. Such notional accounts include employee and employer contributions and reflect the performance of investments selected by the employee or a default investment if the employee does not make a selection. These investment options include the mutual funds offered under our 401(k) plan.
The following table sets forth information regarding the nonqualified deferred compensation of each NEO during the fiscal year ended December 31, 2020.
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Name
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Executive Contributions in Last Fiscal Year
($)(1)
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|
Registrant Contributions in Last Fiscal Year ($)(2)
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Aggregate Earnings in Last Fiscal Year
($)
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Aggregate Withdrawals and Distributions
($)
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|
Aggregate Balance at Last Fiscal Year End
($)(3)
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Ludwig Hantson
|
52,380
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|
17,100
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|
19,106
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|
—
|
|
107,760
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Aradhana Sarin
|
253,978
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|
4,500
|
|
109,091
|
|
—
|
|
501,336
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Ellen Chiniara
|
228,437
|
|
8,900
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|
66,160
|
|
—
|
|
490,066
|
Brian Goff
|
477,864
|
|
17,715
|
|
288,876
|
|
—
|
|
801,910
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Anne-Marie Law
|
191,447
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|
8,900
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149,978
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|
(53,584)
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533,848
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John Orloff
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865,944
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|
15,297
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|
101,520
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—
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|
1,298,164
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(1)Amounts reported in this column are also included in the Summary Compensation Table under Salary.
(2)Amounts reported in this column are also included in the Summary Compensation Table under All Other Compensation.
(3)The aggregate balance amounts under the nonqualified deferred compensation plan include deferrals made for prior fiscal years. For individuals who were NEOs in the fiscal years in which the deferrals were made, the amount of the deferred compensation was included in such individual's compensation as reported in the Summary Compensation Table included in the proxy statement for each such fiscal year.
Potential Payments Upon Termination or Change Of Control
We have entered into certain agreements that may require us to make payments and/or provide benefits to Dr. Hantson, Dr. Sarin, Ms. Chiniara, Mr. Goff and Dr. Orloff in connection with specified terminations of employment, in each case, subject to the applicable NEO’s execution and non-revocation of a general release of claims. See "Severance Payments and Benefits" and “Equity Awards” below for a description of these potential severance entitlements. These agreements also contain restrictive covenants and confidentiality provisions in favor of Alexion and require the NEO to assign all rights he or she may have or acquire in proprietary information.
The tables below summarize the estimated potential payments to each of Dr. Hantson, Dr. Sarin, Ms. Chiniara, Mr. Goff and Dr. Orloff assuming that one of the events described in the table occurred on December 31, 2020. In calculating the amounts due to the executive in respect of his or her equity awards in connection with such event, where applicable, the table below uses the closing price of a share of our common stock on December 31, 2020, $156.24, the last business day of 2020. However, each such executive's employment was not terminated on December 31,
2020 and a change in control did not occur on that date. Moreover, there can be no assurance that a termination of employment, a change in control or both would produce the same or similar results as those set forth below if either or both of them occurred on any other date or when the price of our common stock was different, or if any other assumption used in calculating the benefits set forth below is not correct in fact. Because she terminated employment with the Company prior to December 31, 2020, Ms. Law is not included in the tables below. The severance payments and benefits that Ms. Law received in connection with her termination of employment are described below.
For purposes of the following table, involuntary termination means a termination without cause, constructive termination, or good reason termination, as applicable, in each case as those terms are defined in the applicable NEO's agreement.
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Cash Severance Payments(1)
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Value of Accelerated Equity Awards (2)
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Benefit Continuation Payments(3)
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Total Termination Benefits(4)
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Ludwig Hantson
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n Death
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$2,080,000
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$35,974,391
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$61,587
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$38,115,978
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n Disability
|
$1,755,000
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$35,974,391
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$61,587
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$37,790,978
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n Change in Control
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—
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—
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—
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—
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n Involuntary termination
|
$7,910,000
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$5,557,385
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$61,587
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$13,528,972
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n Involuntary termination after a change in control
|
$13,620,000
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$35,974,391
|
$61,587
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$49,655,978
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Aradhana Sarin
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|
|
|
|
n Death
|
$760,000
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$8,415,578
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$60,017
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$9,235,595
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n Disability
|
$560,000
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$8,415,578
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$60,017
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$9,035,595
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n Change in Control
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—
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—
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—
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—
|
n Involuntary termination
|
$2,040,000
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$1,230,859
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$60,017
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$3,330,876
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n Involuntary termination after a change in control
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$3,280,000
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$8,415,578
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$60,017
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$11,755,595
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Ellen Chiniara
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|
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n Death
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$675,165
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$7,877,957
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$61,587
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$8,614,709
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n Disability
|
$497,490
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$7,877,957
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$61,587
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$8,437,034
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n Change in Control
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—
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—
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—
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—
|
n Involuntary termination
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$1,812,285
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$970,251
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$61,587
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$2,844,123
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n Involuntary termination after a change in control
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$2,913,870
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$7,877,957
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$61,587
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$10,853,414
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Brian Goff
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|
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n Death
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$759,240
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$9,391,028
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$78,730
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$10,228,998
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n Disability
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$559,440
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$9,391,028
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$78,730
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$10,029,198
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n Change in Control
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—
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—
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—
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—
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n Involuntary termination
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$2,037,960
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$1,812,998
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$78,730
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$3,929,688
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n Involuntary termination after a change in control
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$3,276,720
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$9,391,028
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$78,730
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$12,746,478
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John Orloff
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|
|
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n Death
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$790,020
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$9,638,835
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$61,587
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$10,490,442
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n Disability
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$582,120
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$9,638,835
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$61,587
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$10,282,542
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n Change in Control
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—
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—
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—
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—
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n Involuntary termination
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$2,120,580
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$2,060,805
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$61,587
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$4,242,972
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n Involuntary termination after a change in control
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$3,409,560
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$9,638,835
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$61,587
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$13,109,982
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(1)Represents the cash severance amounts that would be payable as a result of the event described in the table above, based on the named executive officer’s base salary and target bonus amount as in effect on December 31, 2020, as applicable, or, for Dr. Hantson, based on his base salary and the average of his actual bonus amount paid in the two most recent fiscal years and without including any accrued but unpaid compensation, paid time-off or any pay in lieu of any notice periods. The cash severance amounts that would be payable to each of our named executive officers in connection with a termination of employment under various circumstances is described in more detail below.
(2)Represents the value associated with cashing out unvested RSUs, earned PSUs and unearned PSUs, as applicable, and, that accelerate as a result of the event described in the table, based on a stock price of $156.24, which was the closing price of Alexion's common stock on December 31, 2020, the last business day of Alexion's 2020 fiscal year, as well as the value associated with any stock options held by our
named executive officers on December 31, 2020. Dr. Hantson's and Mr. Goff's stock options were valued based on the number of shares associated with the unvested portion of each award multiplied by the difference between $156.24, the closing price of Alexion's common stock on December 31, 2020, and the per share exercise price of the stock options. RSUs and PSUs were valued based on the number of shares associated with the unvested portion of each award multiplied by $156.24. Pursuant to their agreements, certain PSUs held by each of the named executive officers would vest to the extent determined in good faith by the Board based on achievement of the applicable performance conditions through termination of employment, as described in further detail under “Equity Awards” below. For purposes of this table, in connection with a change in control or death or disability termination, the value of any earned PSUs is based on the number of earned PSUs as of December 31, 2020 and any unearned PSUs (including those held by Dr. Sarin) are assumed to have vested at target levels, except for any 2019 PSUs, which are assumed to have vested at 115% of target given that an additional 15% of the target award was earned as of December 31, 2020 based on the achievement of R&D milestones. The actual amounts, if any, that will become payable with respect to outstanding unearned PSUs will be different.
(3)Represents the estimated value of the lump sum cash payment that, after all applicable taxes and withholdings are deducted (assuming for this purpose a 42% tax rate), is the economic equivalent of the monthly health premiums paid by the Company on behalf of the named executive officer and his or her dependents as a result of the event described in the table, based on the cost of coverage under our benefit plans as of December 31, 2020.
(4)Under their employment agreements, if amounts payable to each of our named executive officers are subject to an excise tax under Section 4999 of the Code, the amount payable will be the greater of (i) the payments reduced so that no portion of the payments are subject to such excise tax or (ii) the payments reduced by all applicable taxes, including such excise tax. For purposes of this table, it is assumed that no payments will be reduced under this provision.
Severance Payment and Benefits
The severance payments and benefits to which Dr. Hantson, Dr. Sarin, Ms. Chiniara, Mr. Goff and Dr. Orloff are entitled are described below. The terms cause, disability, non-renewal, constructive termination, good reason and change in control (or corollary terms) are each defined in the applicable agreements which have each been filed with the U.S. Securities and Exchange Commission.
Dr. Hantson
If Dr. Hantson's employment with Alexion is terminated other than within 18 months following a change in control (1) by the Company without cause, (2) following a constructive termination, or (3) upon non-renewal of his employment agreement by the Company, Alexion will be obligated to pay him an amount equal to 2.0 multiplied by the sum of (a) his then-current base salary and (b) the greater of (I) his average annual cash incentive award for the two years preceding the year in which his termination of employment occurs and (II) his target annual cash incentive award for the year in which Dr. Hantson's termination of employment occurs (such sum, the “CEO Severance Payment”). The CEO Severance Payment will be paid in installments over a 24-month period following his termination of employment. Additionally, Dr. Hantson will be entitled to a lump sum cash amount equal to the value of the premiums that otherwise would have been paid by the Company, after applicable tax and withholdings, for his and his eligible dependents’ participation in the Company’s health and welfare for an 18-month period (the "Health Care Benefits").
In the event that Dr. Hantson's employment with Alexion is terminated within 18 months following a change in control (1) by the Company without cause, (2) by him for good reason or following a constructive termination, or (3) upon non-renewal of his employment agreement by the Company, Alexion will be obligated to pay Dr. Hantson a cash lump sum payment equal to 3.0 multiplied by the CEO Severance Payment, a pro rata amount of his target annual cash incentive award for the year in which the termination occurs, and the Health Care Benefits.
In the event that Dr. Hantson's employment with Alexion terminates due to his death, his estate will be entitled to receive a cash lump sum equal to three months of his base salary. In the event that his employment is terminated due to death or disability, he (or his estate, as applicable) will also be entitled to receive a pro rata amount of his target annual cash incentive award for the year in which the termination occurs and the Health Care Benefits.
Dr. Sarin, Ms. Chiniara, Mr. Goff and Dr. Orloff
If Dr. Sarin's, Ms. Chiniara's, Mr. Goff's or Dr. Orloff's employment with the Company is terminated other than within 18 months following a change in control (1) by the Company without cause, (2) by the executive following a constructive termination, or (3) upon non-renewal of the executive's employment agreement by the Company, Alexion will be obligated to pay, as a cash lump sum, 1.5 multiplied by the sum of (a) the executive's then-current base salary and (b) an amount equal to the executive's target annual cash incentive award for the year in which the termination of employment occurs (such sum, the “Severance Payment”). Additionally, the executive will be entitled to the Health Care Benefits.
In the event that the executive's employment with the Company is terminated within 18 months following a change in control (1) by the Company without cause, (2) by the executive for good reason or following a constructive discharge, or (3) upon non-renewal of the executive's employment agreement by the Company, Alexion will be obligated to pay the executive a cash lump sum payment equal to 2.0 multiplied by the Severance Payment, a pro rata amount of the executive's target annual cash incentive award for the year in which the termination occurs, and the Health Care Benefits.
In the event that the executive's employment with the Company terminates due to death, the executive's estate will be entitled to receive a cash lump sum equal to three months’ of the executive's base salary. In the event that the executive's employment is terminated due to death or by the Company due to disability, the executive (or his or her estate, as applicable) will also be entitled to receive a pro rata amount of the executive's target annual cash incentive award for the year in which the termination occurs and the Health Care Benefits.
Separation Arrangement for Ms. Law
In connection with Ms. Law's departure from the Company in August 2020, the Company and Ms. Law entered into a Confidential Release and Separation Agreement effective as of September 26, 2020 (the “Separation Agreement”). For a description of the terms of the Separation Agreement, see "Termination and Change of Control-Based Compensation-Departure of Ms. Law" in the CD&A..
Equity Awards
The employment agreements with Dr. Hantson, Dr. Sarin, Ms. Chiniara, Mr. Goff and Dr. Orloff provide the following with respect to the effect of a termination of employment on outstanding equity awards, including a termination of employment following a change in control.
If the executive's employment is terminated due to the executive's death or by the Company due to the executive's disability: (1) all of the executive's time-vesting equity awards will vest and become immediately exercisable, and (2) all other equity awards previously granted to the executive will vest as determined in good faith by the Board based on the percentage of goals and objectives
achieved by the executive and the Company, or, in the case of Dr. Sarin, to the extent provided in the Company's incentive equity plan and award agreements evidencing such awards.
If the executive's employment is terminated by the Company without cause, by the executive following a constructive termination, or due to non-renewal of the executive's employment agreement by the Company, in each case, other than within 18 months following a change in control: (1) for all of the NEOs other than Ms. Chiniara, all of the executive's time-vesting equity awards granted in connection with the commencement of the term of the executive's employment will vest and become immediately exercisable, (2) all of the executive's other time-vesting equity awards that have been granted and are at least 50% vested as of the separation date will vest and become immediately exercisable, and (3) all other equity awards previously granted to and earned by the executive that are at least 50% vested as of the separation date will vest and become immediately exercisable.
If the executive's employment is terminated by the Company without cause, by the executive for good reason or following a constructive termination, or due to non-renewal of the executive's employment agreement by the Company, in each case, within 18 months following a change in control: (1) all of the executive's time-vesting equity awards will vest and become immediately exercisable, and (2) all earned equity awards will vest and become immediately exercisable, and (3) all other unearned equity awards held by the executive will vest as determined in good faith by the Board based on the performance conditions achieved by the executive and Alexion.
Section 280G
The employment agreements with the NEOs each provide that if any payment or benefit that the executive would receive would constitute a “parachute payment” within the meaning of Section 280G of the Code and would be subject to an excise tax under Section 4999 of the Code, the payment will be reduced if such reduction would result in a greater after-tax amount to the named executive officer.
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Director Compensation For Fiscal 2020
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The key objectives of our director compensation program are to attract qualified talent, provide compensation that is commensurate with the substantial time commitment associated with Board service, and foster commonality of interest between Board members and shareholders. Non-employee director compensation is determined by the Board, acting on the recommendation of the Leadership and Compensation Committee. On an annual basis when determining compensation, the Leadership and Compensation Committee considers market data for our peer group, which is the same peer group used for Alexion’s executive compensation benchmarking, the S&P 500 Healthcare Index and the S&P 500 Index. The Leadership and Compensation Committee also considers advice from FW Cook, the independent third-party compensation advisor retained by the Leadership and Compensation Committee, regarding market practices for director compensation. During 2020, FW Cook conducted a review of director compensation levels relative to the market benchmarks and the results of their review indicated Alexion’s then current director compensation was aligned with the median relative to our peer group and the Leadership and Compensation Committee recommended to the Board not to change director compensation in 2020. The Board acted on such recommendation and no changes to director compensation were made in 2020.
The following table sets forth a summary of the compensation earned by and/or paid to our directors in 2020, other than Dr. Hantson who did not receive separate compensation for his service as a director for 2020. The compensation paid for Dr. Hantson for 2020 for his service as our CEO is included in the Summary Compensation Table above.
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Name
|
Fees Earned or Paid in Cash
($)(1)(2)
|
|
Stock Awards
($) (2)
|
|
Total
($)
|
Felix Baker
|
119,994
|
|
349,991
|
|
469,985
|
David Brennan
|
245,034
|
|
349,991
|
|
595,025
|
Christopher Coughlin
|
204,969
|
|
349,991
|
|
554,960
|
Deborah Dunsire
|
94,966
|
|
349,991
|
|
444,957
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Paul Friedman
|
95,000
|
|
349,991
|
|
444,991
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John Mollen
|
120,000
|
|
349,991
|
|
469,991
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Francois Nader
|
94,966
|
|
349,991
|
|
444,957
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Judy Reinsdorf
|
120,047
|
|
349,991
|
|
470,038
|
Andreas Rummelt
|
95,000
|
|
349,991
|
|
444,991
|
(1) Represents retainer fees paid for services as a director during the fiscal year ended December 31, 2020. For 2020, these retainer fees were paid in cash and/or in the form of RSUs at the election of each director. Dr. Baker, Mr. Brennan, Mr. Coughlin, Dr. Dunsire, Dr. Nader and Ms. Reinsdorf elected to receive a portion or all of his or her annual cash retainer fees in the form of RSUs. The director fees earned in the form of RSUs are as follows: Dr. Baker: 1,189; Mr. Brennan: 2,428; Mr. Coughlin: 2,031; Dr. Dunsire: 941; Dr. Nader: 941 and Ms. Reinsdorf: 595. The RSUs were granted in May of 2020 and vest 25% quarterly. Refer below for the determination of grant date fair value.
(2)Represents a $100.92 grant date fair value of RSUs granted in 2020 calculated in accordance with FASB ASC Topic 718, disregarding the effects of estimated forfeitures. See Note 1 and Note 13 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for details as to the assumptions used to determine the fair value of the equity awards granted during the year ended December 31, 2020. The following non-employee directors held the following number of unvested RSUs as of December 31, 2020: Dr. Baker, 4,062; Mr. Brennan 4,682; Mr. Coughlin, 4,112; Dr. Dunsire, 3,938; Dr. Friedman, 3,468; Mr. Mollen, 3,468; Dr. Nader, 3,938; Ms. Reinsdorf, 3,765; and Dr. Rummelt, 3,468. The following non-employee directors held options to purchase the following number of shares as of December 31, 2020: Dr. Baker, 4,623; Mr. Brennan, 7,343; Mr. Coughlin, 7,343; Mr. Mollen,7,422; and Dr. Rummelt, 14,084. Dr. Dunsire, Dr. Friedman, Dr. Nader, and Ms. Reinsdorf, did not hold options as of December 31, 2020.
Director Compensation Policy
As noted above, the Board reviews and approves director compensation each year. Following an analysis of director compensation performed with the assistance of FW Cook, at the recommendation of the Leadership and Compensation Committee, the Board determined not to make any changes to director compensation in 2020.
It is the Board's policy that the CEO does not participate during discussions on matters of compensation for the independent directors and the CEO does not vote on such matters. Under Alexion's director compensation policy, all non-employee directors with attendance at a total of 75% attendance of the Board and Committee meetings on which he or she serves since the prior annual meeting of shareholders, were entitled to receive the following compensation for 2020:
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2020 Compensation Component
|
Value
|
Vehicle
|
Payment or Vesting Schedule
|
Annual Retainer (Non-Chairman)
|
$
|
95,000
|
|
Cash or shares of Alexion common stock
|
Quarterly
|
Annual Retainer (Chairman)
|
$
|
245,000
|
|
Cash or shares of Alexion common stock
|
Quarterly
|
Chair of Audit and Finance Committee
|
$
|
35,000
|
|
Cash or shares of Alexion common stock
|
Quarterly
|
Chair of all other committees
|
$
|
25,000
|
|
Cash or shares of Alexion common stock
|
Quarterly
|
Annual Equity Award1
|
$
|
350,000
|
|
Shares of Alexion common stock
|
One Year from Grant
|
(1)The grant date value is determined based on the closing price of the Company's common stock on the day following the Annual Meeting date, with the award vesting in full on the first anniversary of the grant date, generally subject to the director's continued service.
For 2020 (as was the case in 2019 as well), Mr. Coughlin was awarded an additional annual retainer of $150,000, payable quarterly, in light of Mr. Coughlin's significant increased time commitment as Chair of the Audit and Finance Committee related to the Committee's oversight and management of the Company's response to the DOJ's and SEC's FCPA investigations into the Company's activities. Mr. Coughlin's additional annual retainer was terminated in November 2020 due to the closure of the DOJ's investigation and the settlement of the SEC's FCPA investigation. The amount of the additional retainer paid to Mr. Coughlin in 2020 was reduced to $75,000 and is reflected in the director compensation table above.
A non-employee director may, at such director's election, elect to receive RSUs in lieu of receiving all or a portion of his or her annual cash retainer for service as a director and for service as the chair of a committee. The value of the RSUs will be determined in the same manner as the annual RSUs awarded to directors as described above and will vest quarterly in four equal installments, generally subject to the director's continued service. In 2020, six of our directors elected to receive all or a portion of their cash retainer in the form of RSUs.
Director Deferred Compensation
Each of our non-employee directors is eligible to participate in our non-employee director deferred compensation plan (the Director Deferred Compensation Plan). The Director Deferred Compensation Plan allows a director to make voluntary deferrals of up to 100% of their annual cash retainer, committee chair cash retainer and their annual RSU award. In the event that the director elects to receive an RSU award in lieu of all or a portion of their annual cash retainer and/or committee chair cash retainer, the common stock issued upon the vesting of such RSU award may be voluntarily deferred as well pursuant to the Director Deferred Compensation Plan. The Company does not match any director contributions to the Director Deferred Compensation Plan. Deferred cash retainer amounts are deemed to be invested in various mutual funds and similar investment choices selected by the director from a list of investment choices available under the Director Deferred Compensation Plan. Common stock that is deferred under the Director Deferred Compensation Plan remains in the form of Alexion common stock until after the period 6 months following the end of such director's service on our Board, at which point the director may elect to diversify such notional investment in common stock into the mutual funds and similar investment choices available under the Director Deferred Compensation Plan. For the purpose of the director
compensation table above, we have presented such information as if none of the amounts were deferred.
Non-employee director stock ownership guidelines
Under our stock ownership guidelines, non-employee directors are expected to accumulate, within five years of their election to the Board, shares of Alexion stock equal in value to at least five times the amount of their annual cash retainer. All non-employee directors with more than five years of service have met our stock ownership guidelines, and all non-employee directors with less than five years of service have either met, or are on track to meet, our stock ownership guidelines within the expected time. Non-employee directors are also prohibited from entering into any hedging, pledging or derivative transactions in our stock.