DEF 14A of Royalty Pharma plc
Filed Apr 25, 2024 · FY20230001140361-24-022029
Our Director Nominees
Our Director Nominees The following table provides summary information about each director nominee, and the expected composition of each Board committee following the Annual Meeting, assuming each director nominee is elected. All of the director nominees are currently members of the Board and have been directors of Royalty Pharma plc since 2020, with the exception of Mr. Hodgson, who was first elected as a director at the 2022 Annual Meeting. Mr. Giuliani and Mr. Riggs will not seek re-election to the Board and, accordingly, their Board service will end in June.
Our Director Nominees
| Name | Age(1) | Primary Occupation | Independent | A | MDCC | NCG | Other Public Boards | | Pablo Legorreta Chairman and CEO | 60 | Chairman and CEO, Royalty Pharma plc | | | | | 1 | | Henry Fernandez Lead Independent Director | 65 | Chairman and CEO, MSCI Inc. | | M | | | 1 | | Bonnie Bassler , Ph.D. | 61 | Chair, Department of Molecular Biology at Princeton University | | | M | | 2 | | Errol De Souza, Ph.D. | 70 | Former Executive Chairman, Bionomics Ltd. | | | M | M | 2 | | Catherine Engelbert | 59 | Commissioner, Women’s National Basketball Association | | M | | | 1 | | David Hodgson | 67 | Vice Chairman, General Atlantic | | M | C | | 2 | | Ted Love , M.D. | 65 | Chair, Biotechnology Innovation Organization (BIO) | | | | C | 2 | | Gregory Norden | 66 | Former CFO, Wyeth | | C | | M | 3 |
Our Director Nominees
| (1) Age as of the Record Date of the 2024 Annual Meeting. |
Our Director Nominees
| A - Audit Committee MDCC - Management Development and Compensation Committee NCG - Nominating and Corporate Governance Committee | | C - Chairperson M - Member |
Our Director Nominees
| Royalty Pharma | 2024 Proxy Statement | 9 |
Our Director Nominees
Our Director Nominees
Our Director Nominees
| Directors | Pablo Legorreta | Henry Fernandez | Bonnie Bassler | Errol De Souza | Catherine Engelbert | David Hodgson | Ted Love | Gregory Norden | | Age / Gender | | | | | | | | | | Age(1) | 60 | 65 | 61 | 70 | 59 | 67 | 65 | 66 | | Gender | M | M | F | M | F | M | M | M | | Skills and Experience | | | | | | | | | | Leadership | • | • | • | • | • | • | • | • | | Finance / Accounting | | • | | | • | • | | • | | Science / Biotech | • | | • | • | | | • | • | | Business Strategy | • | • | | • | • | • | • | • | | Research / Academic | | | • | • | | | • | | | Technology/Cybersecurity | | • | • | • | • | • | • | • | | Risk Management | • | • | | • | • | • | • | • | | Corporate Responsibility | | • | • | • | • | • | • | | | Public Company CEO | • | • | | • | | | • | | | Race / Ethnicity / Nationality(2) | | | | | | | | | | African American | | | | | | | • | | | South Asian | | | | • | | | | | | Hispanic or Latinx | • | • | | | | | | | | White | | | • | | • | • | | • | | Born outside the U.S. | • | • | | • | | | | |
Our Director Nominees
| (1) Age as of the Record Date of the 2024 Annual Meeting. |
Our Director Nominees
| (2) Diversity characteristics based on information self-identified by each director. |
Our Director Nominees
| Royalty Pharma | 2024 Proxy Statement | 16 |
Director Nominees
Director Nominees The Board recommends that shareholders vote “FOR” the election of each of the director nominees.
Director Nominees
| Pablo Legorreta Chairman and CEO Age: 60 Director Since February 2020 Birthplace: Mexico Committees: None | Pablo Legorreta | | | | Experience: Pablo Legorreta has been our Chief Executive Officer and Chairman of the Board since inception. Previously, Mr. Legorreta was an investment banker at Lazard Frères in Paris and New York. Mr. Legorreta is also a co-founder of Pharmakon Advisors, a leading provider of debt capital to the biopharmaceutical industry. Mr. Legorreta received a degree in industrial engineering from Universidad Iberoamericana in Mexico City. Other Public Company Directorships: ProKidney Corp. (2022-present) Former Other Public Company Directorships: Epizyme, Inc. (2019-2022) Qualifications: Mr. Legorreta brings over 25 years of leadership experience and a demonstrated track record for delivering strong business results. Mr. Legorreta has deep knowledge of investing in biopharma as he has built and managed Royalty Pharma, the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry, which contributes an important perspective to our Board’s discussion of opportunities and challenges in a rapidly evolving business environment. We also benefit from his extensive experience in the biopharmaceutical industry which enables him to bring a broad perspective of the issues facing our industry. | |
Director Nominees
| Henry Fernandez Lead Independent Director Age: 65 Director Since July 2020 Birthplace: Mexico Committees: • Audit Committee (Member) | Henry Fernandez | | | | Experience: Mr. Fernandez has served as a director and Chairman of the board of directors of MSCI Inc. (“MSCI”) since 2007 and as MSCI’s CEO since 1998. He served as MSCI’s President from 1998 to 2017. Before leading MSCI’s transition to becoming a fully independent, public company in 2007, Mr. Fernandez was a Managing Director at Morgan Stanley. Mr. Fernandez holds a Bachelor of Arts in economics from Georgetown University, an M.B.A. from the Stanford University Graduate School of Business and pursued doctoral studies in economics at Princeton University. Other Public Company Directorships: MSCI (2007-present) Qualifications: Mr. Fernandez was selected to serve on our Board because of his extensive finance, board and leadership experience. Mr. Fernandez brings additional insight to the Board and management acquired by leading the internal and external growth of MSCI, founding two private equity investment firms and working in various areas at Morgan Stanley. This expertise will remain vital to the Board in its oversight of Royalty Pharma’s growth plans and competitive strategies. | |
Director Nominees
| Royalty Pharma | 2024 Proxy Statement | 17 |
Director Nominees
| Bonnie Bassler, Ph.D. Independent Director Age: 61 Director since June 2020 Birthplace: United States Committees: • Management Development and Compensation Committee (Member) | Bonnie Bassler, Ph.D. | | | | Experience: Dr. Bassler currently serves in several roles at Princeton University, including, Chair of the Department of Molecular Biology since 2013, associated faculty member of the Department of Chemistry since 2010, Investigator at the Howard Hughes Medical Institute since 2005, Professor in the Department of Molecular Biology since 1994, and associate faculty member of the Princeton Environmental Institute since 1996. Previously, Dr. Bassler served as the Director of the Council on Science and Technology at Princeton University from July 2008 to June 2013. Dr. Bassler has served as a Trustee of the Alfred P. Sloan Foundation since 2014. Dr. Bassler served as a board member of the American Association for the Advancement of Science from January 2012 to December 2016. She was a member of the National Science Board from January 2010 until May 2016. Dr. Bassler has been elected to the National Academy of Sciences, the National Academy of Medicine, and the Royal Society, among other honorific organizations. She received a B.S. in biochemistry from the University of California-Davis and a Ph.D. in biochemistry from the John Hopkins University. Other Public Company Directorships: Cidara Therapeutics, Inc. (2021-present) Regeneron Pharmaceuticals, Inc. (2016-present) Former Other Public Company Directorships: Kaleido Biosciences, Inc. (2018-2022) Qualifications: Dr. Bassler was selected to serve on our Board because of her extensive scientific knowledge and her scientific and academic career and accomplishments . Dr. Bassler’s experience serving on boards across academia and the biopharmaceutical industry provides her with important qualifications and skills to serve on our Board. | |
Director Nominees
| Errol De Souza, Ph.D. Independent Director Age: 70 Director since June 2020 Birthplace: India Committees: • Nominating and Corporate Governance Committee (Chair) • Management Development and Compensation Committee (Member) | Errol De Souza, Ph.D. | | | | Experience: Errol De Souza, Ph.D. has been a member of our Board since June 2020 and was a member of the Investment Committee of Royalty Pharma from 2008 to June 2020. Previously, Dr. De Souza held various management positions at companies including President, CEO & Director at Biodel from March 2010 to January 2016, Founder, Executive Vice President of R&D and Director at Neurocrine Biosciences from October 1992 to August 1998, President, CEO & Director at Synaptic Pharmaceutical Corporation from September 2002 to March 2003, and Senior Vice President & Head of US R&D at Hoechst Marion Roussel Pharmaceuticals and Aventis Pharmaceuticals (now Sanofi) from September 1998 to September 2002. Dr. De Souza has a B.A. in physiology from the University of Toronto and a Ph.D. in neuroendocrinology from the University of Toronto and was a postdoctoral fellow in neuroscience at The Johns Hopkins University School of Medicine. Other Public Company Directorships: Cyclerion Therapeutics, Inc. (2021-present) Alector, Inc. (2024-present) Former Other Public Company Directorships: Bionomics Ltd. (2008-2023) Catalyst Biosciences, Inc. (2015-2022) Qualifications: Dr. De Souza was selected to serve on our Board because of his deep expertise in the biopharmaceutical industry, having founded companies and served as executive chairman, president and CEO of several public and private biopharmaceutical companies. | |
Director Nominees
| Royalty Pharma | 2024 Proxy Statement | 18 |
Director Nominees
| Catherine Engelbert Independent Director Age: 59 Director since June 2020 Birthplace: United States Committees: • Audit Committee (Member) | Catherine Engelbert | | | | Experience: Ms. Engelbert serves as the first Commissioner of the Women’s National Basketball Association since July 2019. Previously, Ms. Engelbert was with Deloitte from 1986 through 2019, and held various senior positions, including as a partner serving the pharmaceutical and life sciences practice for over two decades, and then as CEO from 2014 to 2019. Ms. Engelbert previously served on the board of Deloitte and as the first woman chair of the Center for Audit Quality Governing Board. Ms. Engelbert also served as the first woman chair of the Catalyst Board, a global non-profit organization that promotes inclusive workplaces for women. She was a founding member of the CEO Action for Diversity and Inclusion, is a vice chair of the Partnership for New York City, serves on The Business Council, the USGA Executive Committee and previously served as a member of the Business Roundtable, where she sat on the Education & Workforce and Immigration committees. Other Public Company Directorships: McDonald’s Corporation (2019-present) Qualifications: Ms. Engelbert was selected to serve on our Board because her experience as Commissioner of a professional sports league and as former chief executive officer of Deloitte LLP provides knowledge of global business operations, finance, leadership, strategy and risk management matters. Having led a firm of 100,000 professionals at Deloitte LLP, she also brings significant experience in talent management. She is a Certified Public Accountant. Ms. Engelbert’s qualification as an “audit committee financial expert” is an important attribute as a member of our Audit Committee. | |
Director Nominees
| David Hodgson Independent Director Age: 67 Director since June 2022 Birthplace: United States Committees: • Management Development and Compensation Committee (Chair) • Audit Committee (Member) | David Hodgson | | | | Experience: Mr. Hodgson is a Managing Director and Vice Chairman of General Atlantic, a global growth private equity firm. Mr. Hodgson serves on the board of directors of Johns Hopkins HealthCare and Johns Hopkins Medicine International. Mr. Hodgson holds an A.B. in Mathematics and Social Sciences from Dartmouth College and an M.B.A. from the Stanford University Graduate School of Business. Other Public Company Directorships: TriNet Group, Inc. (2005-present) Alignment Healthcare, Inc. (2014-present) Qualifications: Mr. Hodgson was selected to serve on our Board because of his extensive management and board experience acquired over his 40 years at General Atlantic, one of the world’s leading growth equity investment firms, and his extensive knowledge of business, finance and strategic transactions, which provide valuable insight for our long-term corporate and business strategy. He also brings valuable experience on other healthcare companies’ boards. | |
Director Nominees
| Royalty Pharma | 2024 Proxy Statement | 19 |
Director Nominees
| Ted Love, M.D. Independent Director Age: 65 Director since July 2020 Birthplace: United States Committees: • Nominating and Corporate Governance Committee (Member) | Ted Love, M.D. | | | | Experience: Dr. Love serves as BIO’s Chair of its Board of Directors for a two-year term (2023-2025). Previously, Dr. Love served as president and chief executive officer of Global Blood Therapeutics, Inc. from June 2014 to October 2022. From February 2010 to August 2012, he served as executive vice president, research and development and technical operations, at Onyx Pharmaceuticals, Inc. Prior to Onyx, from 2001 to January 2009, Dr. Love served as president, chief executive officer and chairman of Nuvelo, Inc. Prior to that, he served as senior vice president, development, at Theravance, Inc. from 1998 to 2001. Previously, he spent six years at Genentech, Inc., where he held a number of senior management positions in medical affairs and product development and served as chairman of Genentech’s Product Development Committee. Dr. Love served as a consultant in medicine in the Department of Cardiology at the Massachusetts General Hospital. Within the past five years, Dr. Love previously served on the board of directors of Amicus Therapeutics, Inc., a biotechnology company, and Cascadian Therapeutics, Inc., a biopharmaceutical company. Dr. Love holds a B.A. in molecular biology from Haverford College and an M.D. from Yale Medical School. He completed a residency in internal medicine and a fellowship in cardiology at the Massachusetts General Hospital. Other Public Company Directorships: Structure Therapeutics Inc. (2023-present) Gilead Sciences, Inc. (2024-present) Former Other Public Company Directorships: Seagen Inc. (2020-2023) Global Blood Therapeutics, Inc. (2014-2022) Qualifications: Dr. Love was selected to serve on our Board because of his more than 20 years of leadership and management experience in the biopharmaceutical industry, including BIO, Global Blood Therapeutics, Inc. and Onyx Pharmaceuticals, Inc., in addition to his prior experience as a practicing physician. Dr. Love also has notable experience on the boards of other public healthcare companies. He brings both strong business expertise, experience as a CEO of a global healthcare company, and knowledge of patient perspectives to our Board. | |
Director Nominees
| Gregory Norden Independent Director Age: 66 Director since June 2020 Birthplace: United States Committees: • Audit Committee (Chair) • Nominating and Corporate Governance Committee (Member) | Gregory Norden | | | | Experience: Mr. Norden is the Managing Director of G9 Capital Group LLC, which invests in early-stage ventures and provides corporate finance advisory services, since January 2010. Gregory Norden was a member of the Investment Committee of Royalty Pharma from 2014 to June 2020. From 1989 to 2010, Mr. Norden held various senior positions at Wyeth, including Chief Financial Officer. Mr. Norden started his career with Arthur Andersen & Company. Other Public Company Directorships: Zoetis Inc. (2013-present) Praxis Precision Medicines, Inc. (2019-present) NanoString Technologies, Inc. (2012-present) Qualifications: Mr. Norden was selected to serve on our Board because of his vast financial and accounting expertise along with his extensive public company board experience. As former Chief Financial Officer of Wyeth, Mr. Norden has broad knowledge of global business operations, finance, leadership, strategy and risk management matters. Mr. Norden’s qualification as an “audit committee financial expert” is critical as Chair of our Audit Committee. | |
Director Nominees
| Royalty Pharma | 2024 Proxy Statement | 20 |
Director Nominees
For a director nominee to be elected, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the director nominee’s election. Separate resolutions for the election of each nominee will be submitted for shareholder vote at the Annual Meeting. Our Board believes that the election of each director nominee is advisable and in the best interests of Royalty Pharma and our shareholders.
Director Nominees
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Role of Lead Independent Director
Role of Lead Independent Director The independent directors of our Board have appointed Henry Fernandez as our Lead Independent Director. In this role, Mr. Fernandez:
Role of Lead Independent Director
| Henry Fernandez Lead Independent Director | • | Promotes a strong Board culture, including encouraging and facilitating active participation of all directors | | | • | Presides over all meetings of the Board at which the Chairman of the Board is not present; | | | • | Leads executive sessions and facilitates discussion of Royalty Pharma’s strategy, key governance issues (including succession planning) and the performance of senior executives; | | | • | Focuses on Board effectiveness, performance and composition; | | | • | Acts as the liaison between the independent directors and the Chief Executive Officer and Chairman of the Board, and as a contact person to facilitate communications by Royalty Pharma’s employees, shareholders, and other stakeholders with the independent directors; | | | • | Advises the committee chairs in fulfilling their designated responsibilities; and | | | • | Performs such other functions and responsibilities as requested by our Board from time to time. |
Role of Lead Independent Director
Mr. Fernandez has substantial experience with corporate governance and public company management, as well as deep knowledge of Royalty Pharma and its governance practices. The Board believes Mr. Fernandez’s experience enables him to provide a valuable perspective on Royalty Pharma’s growing business and risk management and enhances his ability to challenge members of senior management. The Board commended Mr. Fernandez’s strength as Lead Independent Director, highlighting his leadership and the effectiveness with which he acts as a liaison between the Board and management.
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION The Management Development and Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect to the compensation of our non-employee directors. We pay our independent directors according to our Independent Director Compensation Policy, described further below. All members of the Board are reimbursed for reasonable costs and expenses incurred in their service on our Board. Highlights of Our Program:
DIRECTOR COMPENSATION
| • | Periodic market assessments and analyses by the Management Development and Compensation Committee; | | • | Equity makes up a meaningful portion of the non-employee directors’ overall compensation mix to align interests with shareholders; | | • | No cash retainers for leadership roles and committee membership to encourage shared responsibilities among all directors; | | • | Director Share Ownership Guidelines of five times the annual Board membership cash retainer; | | • | No short sales of share ownership positions and transactions involving derivatives of our ordinary shares; and | | • | No additional fees are paid for Board or committee meeting attendance. |
Independent Director Compensation Policy
Independent Director Compensation Policy Each independent director is generally entitled to receive the following compensation for his or her service on our Board:
Independent Director Compensation Policy
| • | Annual cash retainer of $150,000; |
Independent Director Compensation Policy
| • | Annual equity award with a grant date value of $250,000; and |
Independent Director Compensation Policy
| • | Initial equity award of $100,000 at the commencement of his or her service on our Board. |
Independent Director Compensation Policy
The following table sets forth the total compensation for our directors who were compensated for the year ended December 31, 2023. Messrs. Giuliani and Riggs began receiving compensation for their service on our Board after the 2023 Annual Meeting. Mr. Legorreta did not receive any compensation for his service on our Board in 2023.
Director Compensation for 2023
Director Compensation for 2023
Director Compensation for 2023
| Director | Fees Earned or paid in Cash ($)(1) | Share Awards ($)(2) | Total ($) | | Bonnie Bassler, Ph.D. | 150,000 | 239,770 | 389,770 | | Errol De Souza, Ph.D. | 150,000 | 239,770 | 389,770 | | Catherine Engelbert | 150,000 | 239,770 | 389,770 | | Henry Fernandez | 150,000 | 239,770 | 389,770 | | M. Germano Giuliani(3) | 78,709 | 239,770 | 318,479 | | David Hodgson | 150,000 | 239,770 | 389,770 | | Ted Love, M.D. | 150,000 | 239,770 | 389,770 | | Gregory Norden | 150,000 | 239,770 | 389,770 | | Rory Riggs(3) | 78,709 | 239,770 | 318,479 |
Director Compensation for 2023
| (1) Amounts reported in this column include the value of Class A ordinary shares received in lieu of (i) first quarter cash fee payments on March 31, 2023 based on a Class A ordinary share price of $35.7276 for Dr. Bassler and Mr. Fernandez (1,049 Class A ordinary shares, respectively); (ii) a second quarter cash fee payment on June 30, 2023 based on a Class A ordinary share price of $31.0273 for Dr. Bassler and Mr. Fernandez (1,208 Class A ordinary shares, respectively); (ii) third quarter cash fee payments on September 29, 2023 based on a Class A ordinary share price of $27.0775 for Dr. Bassler and Mr. Fernandez (1,384 Class A ordinary shares, respectively); and (iii) fourth quarter cash fee payments on December 29, 2023 based on a Class A ordinary share price of $27.711 for Dr. Bassler and Mr. Fernandez (1,353 Class A ordinary shares, respectively). |
Director Compensation for 2023
| (2) The amounts reported in this column represent the aggregate grant date fair value of restricted share units granted to directors in 2023 as defined in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718, or ASC 718. This amount does not reflect the actual economic value realized by the director, which will vary depending on the performance of our Class A ordinary shares. Each of Dr. Bassler, Dr. De Souza, Ms. Engelbert, Mr. Fernandez, Mr. Giuliani, Mr. Hodgson, Dr. Love, Mr. Norden and Mr. Riggs received an annual equity award grant of 7,747 restricted |
Director Compensation for 2023
| Royalty Pharma | 2024 Proxy Statement | 39 |
Director Compensation for 2023
share units, respectively (determined by dividing $250,000 by the volume weighted average price of the Class A ordinary shares for the ten trading days immediately prior to such grant date of June 23, 2023). As of December 31, 2023, Dr. Bassler, Dr. De Souza, Ms. Engelbert, Mr. Fernandez, Mr. Giuliani, Mr. Hodgson, Dr. Love, Mr. Norden and Mr. Riggs held 7,747 unvested restricted share units, respectively.
Director Compensation for 2023
| (3) Mr. Giuliani and Mr. Riggs became eligible for director compensation in June 2023. |
Indemnification of Directors and Officers
Indemnification of Directors and Officers We have agreed to indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts on an after tax basis: any director or officer, any person who is or was serving at our request as a director, officer, employee, member, partner, tax matters partner, agent, fiduciary or trustee of another person, and any person the Board in its sole discretion designates as an indemnitee. We have agreed to provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct, subject to the limitations set forth in the following paragraph. We have also agreed to provide this indemnification for criminal proceedings, subject to the limitations set forth in the following paragraph. Any indemnification under these provisions will only be out of our assets. The U.K. Companies Act renders void an indemnity for a director against any liability that would otherwise attach to that director in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director. Furthermore, any provision that purports to oblige a company to indemnify (directly or indirectly) a director of that company or an associated company from any liability that would otherwise attach to that director in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director is void other than with respect to certain permitted indemnity obligations in connection with the provision of insurances, qualifying third party indemnities and qualifying pension scheme indemnities. We may also purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against such liabilities.
Indemnification of Directors and Officers
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Indemnification of Directors and Officers
| Proposal 2 VOTE ON A NON-BINDING ADVISORY BASIS ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS |
Indemnification of Directors and Officers
| The Board recommends that shareholders vote “FOR” the approval of named executive officer compensation. |
Indemnification of Directors and Officers
In accordance with Section 14A of the Exchange Act, we are asking shareholders to approve, on a non-binding advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. We urge shareholders to read the “Compensation Discussion and Analysis” section of this Proxy Statement, which describes in more detail our executive compensation policies and procedures as well as the Summary Compensation Table for the year ended December 31, 2023, and other related compensation tables and narrative discussions, which provide detailed information on the compensation of our named executive officers. Our named executive officers are compensated for their services to us by the Manager and do not receive any compensation directly from us. We do not reimburse the Manager for the compensation of any of our named executive officers and do not make any decisions regarding the amount or nature of this compensation. For a description of our obligations to pay the Operating and Personnel Payment to the Manager under the Management Agreement, please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” Our Management Development and Compensation Committee believes that the policies and procedures articulated in the “Compensation Discussion and Analysis” section of this Proxy Statement are effective in achieving our goals and that the compensation of our named executive officers reported in this Proxy Statement help position us for long-term success. We currently hold advisory votes on the compensation of our named executive officers on an annual basis. For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Please note that this vote is advisory and non-binding on us, our Board or the Management Development and Compensation Committee. This non-binding vote is not meant to address any particular element of our executives’ compensation arrangements. Our Board believes that approving named executive officer compensation is advisable and in the best interests of Royalty Pharma and our shareholders.
Indemnification of Directors and Officers
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Compensation Program Best Practices
| What the Executive Compensation Program Does Not Do: | | | | Encourage excessive risk taking | | | No employment agreements | | | No supplemental severance benefits | | | No short sales and derivative transactions in our equity and hedging of our shares | | | No excise tax “gross-up” payments in the event of a change in control | | | No excessive or unusual perquisites | | | No tax “gross-up” payment on perquisites for named executive officers | | | No special health and welfare benefits | | | No supplemental executive retirement benefits |
Advisory Vote on Executive Compensation and Shareholder Engagement
| • | Equity Performance Awards are performance-based with rigorous goals and payout criteria; and |
Compensation Program Philosophy and Objectives
| • | align the interests of our named executive officers and other key employees with the long-term interests of our shareholders to maximize value; and |
Compensation Program Philosophy and Objectives
| • | provide competitive compensation opportunities, with an appropriate balance between short-term and long-term incentives, to attract, motivate and retain key executives crucial to Royalty Pharma’s long-term success. |
Compensation Program Philosophy and Objectives
Base salaries are dictated by employee proficiency and experience in their roles. In addition to base salary, the Manager utilizes annual bonuses and Equity Performance Awards to further incentivize and retain talent and provide an overall compensation package that is competitive with the market. Annual bonuses are generally paid to employees annually based on profitability, market conditions and employee performance. Equity Performance Awards align the interests of our named executive officers and other key employees with those of our shareholders. This alignment has been a key contributor to our strong performance and growth. We also believe that the significant shareholdings in Royalty Pharma by our named executive officers results in alignment of their interests with those of our shareholders. The compensation program is a management tool supporting our mission and values. We believe the program supports, reinforces and aligns our values, business strategy and operations with our goals of increasing the number of biopharmaceutical royalties in our portfolio. Compensation arrangements with our named executive officers are described below under “Elements of Compensation.”
Compensation Risk
Compensation Risk The Manager’s compensation policies are designed to incentivize investing in a risk-controlled fashion and are intended to discourage undue risk. A key element of the compensation program consists of Equity Performance Awards for our named executive officers. We believe this policy encourages long-term thinking and protects us against excessive risk and investing for short-term gain. We do not believe that the compensation program creates risks that are reasonably likely to have a material adverse effect on Royalty Pharma. Importantly, the value of the Equity Performance Awards of any named executive officer is a function of the profitability of the royalties we acquire as a whole, rather than specific investments, meaning that our named executive officers have a material interest in every investment. This approach discourages excessive risk taking, since losses on investments will reduce Equity Performance Awards on profitable investments. In addition, the share retention obligations and ownership requirements set forth in our Executive Share Ownership Guidelines discourage excessive risk-taking because the value of these interests is tied directly to the long-term performance of our Class A shares. Our Management Development and Compensation Committee is responsible for reviewing any risks associated with the compensation program for our named executive officers, as described in more detail under “Board Oversight of Risk Management” above.
Annual Bonus
Annual Bonus Each of our named executive officers, other than Mr. Legorreta participates in the Manager’s annual cash bonus plan, which provides each participant with an annual cash bonus opportunity in an amount to be determined by our Manager. Mr. Legorreta does not participate in our annual cash bonus plan. The primary factors considered in determining the discretionary bonuses for Messrs. Coyne, Hite, Lloyd and Urist are discussed below. The subjective factors that contributed to the determination of the bonus amounts included an assessment of the performance of Royalty Pharma and our portfolio, the individual performance and contributions of our named executive officer to our business during 2023 and our named executive officer’s potential to enhance portfolio returns and contribute to long-term shareholder value. Each of Messrs. Coyne, Hite, Lloyd and Urist provided critical and significant contributions to Royalty Pharma’s achievements in 2023. In assessing Mr. Coyne’s performance, the Manager considered his oversight of our accounting, finance and treasury functions, as well as his management of our balance sheet and focus on managing costs. In assessing Mr. Hite’s performance, the Manager considered his leadership in sourcing and analyzing investment opportunities to create value for our shareholders in his role as Vice Chairman. In assessing Mr. Lloyd’s performance, the Manager considered his oversight of our legal team and his efforts to address legal and regulatory considerations applicable to our business and to our firm as a public company. In assessing Dr. Urist’s performance, the Manager considered his leadership in sourcing and analyzing investment opportunities to create value for our shareholders in his role as head of Research and Investments.
Role of Compensation Consultant
Role of Compensation Consultant The Management Development and Compensation Committee directly engaged Semler Brossy Consulting Group, LLC (“Semler Brossy”) in 2023 to serve as its independent compensation consultant. The Management Development and Compensation Committee takes into consideration the advice of Semler Brossy to inform its decision-making process and has sole authority for retaining and terminating its compensation consultant, as well as approving the terms of engagement, including fees. Services provided by Semler Brossy to the Management Development and Compensation Committee relating to executive compensation in 2023 included: insights and perspectives on executive compensation matters; assessed how the executive compensation program aligns with pay for performance; and updated the Management Development and Compensation Committee on emerging trends and best practices in the areas of compensation governance and executive compensation. Semler Brossy does not provide any other services to Royalty Pharma. The Management Development and Compensation Committee has determined Semler Brossy to be independent from management and that its engagement did not present any conflicts of interest. From time to time, the Management Development and Compensation Committee may engage other consultants and advisors in connection with various compensation matters.
Role of Compensation Consultant
| Royalty Pharma | 2024 Proxy Statement | 55 |
Biopharmaceutical Peer and Financial Services Comparator Groups
Biopharmaceutical Peer and Financial Services Comparator Groups Semler Brossy assisted in review of a group of relevant companies and provided historical compensation data regarding such companies as a reference point in connection with the Management Development and Compensation Committee’s evaluation of the Manager’s compensation. Our business is at the intersection of the biopharmaceutical and financial services sectors. In many ways, our investments in biopharmaceutical royalties are similar to alternative investments made by asset management firms, though it is necessary that employees be leading experts in the biopharmaceutical space. To that end, Semler Brossy and the Management Development and Compensation Committee felt it was necessary to create a peer group that reflected the influence of these two industries on our approach to talent management and, given our higher margin business, establish the group using profitability as the core sizing metric. Our peer group consisted of the companies listed in the charts below.
Biopharmaceutical Peer and Financial Services Comparator Groups
| Biopharmaceutical Peer Group (13) | | | | | • Eli Lilly • Johnson& Johnson • Merck & Co. • Pfizer | • AbbVie • Bristol-Myers Squibb • Amgen • Gilead | • Biogen • Vertex Pharmaceuticals • Incyte • Regeneron | • BioMarin |
Biopharmaceutical Peer and Financial Services Comparator Groups
| Financial Services Comparator Group (9) | | | | • Blackstone • T. Rowe Price • Carlyle | • Apollo • Ares • Invesco | • Jefferies • Affiliated Managers Group • Lazard |
Summary Compensation Table
Summary Compensation Table The following table provides summary information concerning the compensation awarded to, earned by or paid to each of our named executive officers for the fiscal year ended December 31, 2023 for services rendered in all capacities during the last three fiscal years during which such individuals were named executive officers. As discussed above under “Certain Relationships and Related Party Transactions–Management Agreement,” we are externally managed and have no personnel of our own. We, RP Holdings and RPI have entered into the Management Agreement with the Manager who manages our business and assets and sources and evaluates new royalty acquisitions. The Manager employs our named executive officers. As discussed above under “Compensation Discussion and Analysis–Overview,” our named executive officers are compensated for their service to us by the Manager and do not receive any compensation directly from us. We do not reimburse the Manager for the compensation of any of our named executive officers and do not make any decisions regarding the amount or nature of this compensation. For a description of our obligations to pay the Operating and Personnel Payment to the Manager under the Management Agreement, please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” Our CEO, Mr. Legorreta, does not receive employee compensation for his services. However, Mr. Legorreta is entitled to Equity Performance Awards. In addition, as a result of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager, which consist of the management fee from Royalty Pharma less the expenses of the Manager, including operating expenses and the compensation of the employees of the Manager, including our named executive officers. The profits of the Manger are shown in the table below entitled the “Profits of the Manager.” Please also refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.”
Summary Compensation Table
| Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | All Other Compensation ($)(4) | Total ($) | | Pablo Legorreta* Chief Executive Officer | 2023 | See below under “Profits of the Manager” | | | | | | | 2022 | | | | | | | | 2021 | | | | | | | Terrance Coyne Executive Vice President & Chief Financial Officer | 2023 | 1,200,000 | 3,360,000 | — | — | 4,560,000 | | | 2022 | 1,150,000 | 3,200,000 | — | — | 4,350,000 | | | 2021 | 1,050,000 | 2,850,000 | — | — | 3,900,000 | | Christopher Hite Executive Vice President & Vice Chairman | 2023 | 1,200,000 | 3,360,000 | — | — | 4,560,000 | | | 2022 | 1,150,000 | 3,200,000 | — | — | 4,350,000 | | | 2021 | 1,050,000 | 2,850,000 | — | 106,250 | 4,006,250 | | George Lloyd Executive Vice President, Investments & Chief Legal Officer | 2023 | 1,200,000 | 3,360,000 | — | — | 4,560,000 | | | 2022 | 1,150,000 | 3,200,000 | — | — | 4,350,000 | | | 2021 | 1,050,000 | 2,850,000 | — | — | 3,900,000 | | Marshall Urist, M.D., Ph.D. Executive Vice President, Research & Investments | 2023 | 1,200,000 | 3,360,000 | — | — | 4,560,000 | | | 2022 | 1,150,000 | 3,200,000 | — | — | 4,350,000 | | | 2021 | 700,000 | 2,850,000 | — | — | 3,550,000 |
Summary Compensation Table
| (1) Reflects salary paid by the Manager to each named executive officer for services, except for Mr. Legorreta who does not receive employee compensation. However, Mr. Legorreta is entitled to Equity Performance Awards because of his ownership of EPA Holdings. In addition, as result of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager as described in more detail under “Profits of the Manager” below. |
Summary Compensation Table
| (2) Reflects bonuses paid by the Manager under the Manager’s discretionary annual cash bonus program for services. |
Summary Compensation Table
| (3) Neither the Company nor the Manager granted any stock awards to any of our named executive officers in 2023. Each of our named executive officers received Equity Performance Awards in 2022. Each Equity Performance Award amounts to an allocation in the Net Economic Profits to be realized on royalties acquired by RP Holdings as described in “Compensation Discussion and Analysis” above. We consider these awards to have a fair value of zero on the date of grant and consequently we have not included any amount of compensation for awards granted in this Summary Compensation Table disclosure. The actual amount realized by our named executive officers in respect of the Equity Performance Awards upon settlement will be reported in the Options Exercised and Stock Vested Table for the year of settlement of such awards. For additional details regarding Equity Performance Awards, see “Equity Performance Awards” above. |
Summary Compensation Table
| (4) For Mr. Hite, amounts shown represented cash payments to Mr. Hite on unvested limited partnership interests in RPI US Partners 2019, LP. |
Summary Compensation Table
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Grants of Plan-Based Awards
Grants of Plan-Based Awards The Manager did not make any grants of cash incentive plan awards in 2023, 2022 or 2021. Equity Performance Awards were granted to our named executive officers in 2022 and 2020, but we consider these awards to have a fair value of zero as of the date of grant.
Outstanding Equity Awards at 2023 Fiscal Year-End
Outstanding Equity Awards at 2023 Fiscal Year-End The following table provides information on the market value of Equity Performance Awards held by each of our named executive officers as of December 31, 2023.
Outstanding Equity Awards at 2023 Fiscal Year-End
| Name | Market Value of Securities Underlying Outstanding Equity Performance Awards(1) ($) | | Pablo Legorreta | 181,131,343 | | Terrance Coyne | 32,943,639 | | Christopher Hite | 32,943,639 | | George Lloyd | 32,943,639 | | Marshall Urist, M.D., Ph.D. | 27,022,308 |
Outstanding Equity Awards at 2023 Fiscal Year-End
| (1) Represents an estimate of the aggregate net present value as of December 29, 2023 of each named executive officer’s Equity Performance Awards as described under “Equity Performance Awards.” For illustrative purposes, assuming the Equity Performance Awards became payable and were settled as of December 31, 2023, the aggregate number of Class A ordinary shares that would have been delivered to each of our named executive officers in respect of their Equity Performance Awards would have been as follows: for Mr. Legorreta, 6,448,250 Class A ordinary shares; for Mr. Coyne 1,172,789 Class A |
Outstanding Equity Awards at 2023 Fiscal Year-End
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Outstanding Equity Awards at 2023 Fiscal Year-End
ordinary shares; for Mr. Hite, 1,172,789 Class A ordinary shares; for Mr. Lloyd, 1,172,789 Class A ordinary shares; and for Dr. Urist, 961,990 Class A ordinary shares. The actual amount realized by our named executive officers in respect of the Equity Performance Awards upon settlement will be reported in the Options Exercised and Shares Vested Table for the year of settlement of such awards. For additional details regarding Equity Performance Awards, see “Equity Performance Awards” above.
Option Exercises and Shares Vested in 2023
Option Exercises and Shares Vested in 2023 No Equity Performance Awards became payable during the year ended December 31, 2023. We have never issued any options and, accordingly, our named executive officers had no option exercises during the year ended December 31, 2023.
Pension Benefits
Pension Benefits We do not provide pension benefits to our named executive officers.
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation We do not provide defined contribution plans for the deferral of compensation on a basis that is not tax-qualified.
Potential Payments upon Termination or Change in Control
Potential Payments upon Termination or Change in Control Our named executive officers are not entitled to any additional payments or benefits upon termination of employment, upon a change in control or upon retirement, death or disability, except that, for certain of our named executive officers, certain of their Equity Performance Awards will accelerate upon termination of such named executive officers’ services to us by reason of death or disability of such named executive officer. Equity Performance Awards are generally biennial awards and forfeitable upon termination of employment in certain circumstances.
Tax and Accounting Considerations
| CEO PAY RATIO |
CEO Pay Ratio
CEO Pay Ratio As noted above, Mr. Legorreta does not receive a salary. As a result of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager, which consist of the management fee from Royalty Pharma less the expenses of the Manager, including operating expenses and the compensation of the employees of the Manager, including our named executive officers. Please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” We are providing the following information regarding the relationship between the annual total compensation of the median employee of the Manager and the profits of the Manager in 2023, which accrued to the benefit of our Chief Executive Officer, Mr. Legorreta. We have selected December 31 of each fiscal year as the determination date for the calculation of the CEO pay ratio. Our methodology for identifying the median employee of the Manager for the 2023 determination date (December 31, 2023) included the following:
CEO Pay Ratio
| • | We collected total compensation information for 2023 from our payroll register for all employees of the Manager. Total compensation generally included an employee’s gross income, including wages, bonuses and other cash incentives. |
CEO Pay Ratio
| • | We annualized total compensation for our new hires and for those employees on unpaid leave for any period of time during the respective measurement period. |
CEO Pay Ratio
| • | We then sorted the total compensation for each employee (excluding our Chief Executive Officer) from lowest to highest and identified the employee who was paid the median 2023 annual total compensation amount. |
CEO Pay Ratio
Our analysis determined that the median employee of the Manager earned $353,061 in total compensation for 2023. The profits of the Manager received by Mr. Legorreta were $84,837,077 in 2023. Using this methodology, our ratio of Chief Executive Officer to median employee pay was 240 to 1. As the SEC rules allow for companies to adopt a wide range of methodologies to calculate their CEO pay ratio, the estimated ratio should not be used as a basis for comparison to that of other companies.
CEO Pay Ratio
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PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE The following table reports the compensation of our CEO who is our principal executive officer and the average compensation of the other named executive officers (“Non-CEO NEOs”) as reported in the “Summary Compensation Table” for the past three fiscal years, as well as their “compensation actually paid” as calculated pursuant to SEC rules and certain performance measures required by such rules.
PAY VERSUS PERFORMANCE
| Year | Summary Compensation Table Total for CEO ($) | Compensation Actually Paid to CEO ($) | Average Summary Compensation Table Total for Non-CEO NEOs ($) | Average Compensation Actually Paid to Non-CEO NEOs ($) | Value of Initial Fixed $100 Investment Based on: | | Net Income ($ Millions) | Portfolio Receipts Growth (%) | Supplemental Metrics | | | | | | | | TSR ($) | Peer Group TSR ($) | | | SG&A as % of Portfolio Receipts (%) | Adjusted EBITDA Margin (%) | | (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | | 2023 | See above under “Profits of the Manager” | 26,793,427 | 4,560,000 | 11,235,243 | 68.83 | 173.07 | 1,135 | 9 | 8.0 | 92.0 | | 2022 | | 45,763,879 | 4,350,000 | 11,908,830 | 92.72 | 155.00 | 43 | 31 | 8.0 | 92.0 | | 2021 | | 57,044,154 | 3,839,063 | 12,269,171 | 91.75 | 137.29 | 620 | 18 | 8.7 | 91.3 | | 2020 | | 51,529,883 | 3,457,428 | 12,256,554 | 113.15 | 106.01 | 975 | 1 | 10.0 | 90.0 |
PAY VERSUS PERFORMANCE
Column (b). See above under “Profits of the Manager” for a discussion of the compensation of our CEO, Mr. Legorreta, for the respective years shown. Amounts shown in column (b) above do not include the $84,837,077, $93,478,402, $49,513,461 and $55,674,558 for 2023, 2022, 2021 and 2020, respectively, in profits of the manager to which Mr. Legorreta was entitled. Column (c). “Compensation actually paid” to our CEO in each of 2023, 2022, 2021 and 2020 reflects the respective amounts set forth in column (b) of the table above, adjusted as set forth in the table below, as determined in accordance with SEC rules. The dollar amounts reflected in column (c) of the table above do not reflect the actual amount of compensation earned by or paid to our CEO during the applicable year. Further, the increase in the dollar amounts between columns (b) and (c) in the table above represents the year-over-year changes in the aggregate net present value of outstanding Equity Performance Awards. For additional information regarding Equity Performance Awards, see “Equity Performance Awards” above. For information regarding the CEO’s compensation for each fiscal year and his entitlement to the profits of the Manager, please see the Compensation Discussion and Analysis sections of the proxy statements reporting pay for the fiscal years covered in the table above.
PAY VERSUS PERFORMANCE
| Year | 2020 ($) | 2021 ($) | 2022 ($) | 2023 ($) | | SCT Total Compensation | See above under “Profits of the Manager” | | | | | Plus: Year-End Net Present Value of Outstanding Equity Performance Awards Granted in the Covered Year | 51,529,883 | — | 9,966,920 | — | | Plus: Change in Net Present Value of Outstanding Equity Performance Awards Granted in Prior Years | — | 57,044,154 | 35,796,959 | 26,793,427 | | Plus: Change in Net Present Value of Equity Performance Awards Granted in Prior Years which Became Payable in the Covered Year | — | — | — | — | | Less: Prior Year Net Present Value of Equity Performance Awards Forfeited in the Covered Year | — | — | — | — | | Compensation Actually Paid | 51,529,883 | 57,044,154 | 45,763,879 | 26,793,427 |
PAY VERSUS PERFORMANCE
As we consider the Equity Performance Awards to have a fair value of zero as of the date of grant, no adjustments were necessary to deduct the grant date fair value of Equity Performance Awards from the Total Compensation reported in the Summary Compensation Table for any applicable year. There were no Equity Performance Awards which were granted and became payable in the same year and no dividends or other earnings paid on Equity Performance Awards in the covered fiscal year prior to the vesting date that are not otherwise included in the total compensation for the covered fiscal year. In addition, as our CEO does not receive pension benefits, no adjustments were required with respect thereto.
PAY VERSUS PERFORMANCE
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PAY VERSUS PERFORMANCE
Column (d). The following Non-CEO named executive officers are included in the average figures shown: 2020: Terrance Coyne, Christopher Hite, George Lloyd and James Reddoch, Ph.D. 2021, 2022 and 2023: Terrance Coyne, Christopher Hite, George Lloyd and Marshall Urist, M.D., Ph.D. Column (e). Average “compensation actually paid” for our Non-CEO NEOs in each of 2023, 2022, 2021 and 2020 reflects the respective amounts set forth in column (d) of the table above, adjusted as set forth in the table below, as determined in accordance with SEC rules. The dollar amounts reflected in column (e) of the table above do not reflect the actual amount of compensation earned by or paid to our Non-CEO NEOs during the applicable year. Further, the increase in the dollar amounts between columns (d) and (e) in the table above represents the year over year changes in the average salaries, bonuses and aggregate net present value of Equity Performance Awards. For additional information regarding Equity Performance Awards, see “Equity Performance Awards” above. For information regarding the Non-CEO NEOs’ compensation for each fiscal year, please the Compensation Discussion and Analysis sections of the proxy statements reporting pay for the fiscal years covered in the table above.
PAY VERSUS PERFORMANCE
| Year | 2020 Average ($) | 2021 Average ($) | 2022 Average ($) | 2023 Average ($) | | SCT Total Compensation | 3,457,428 | 3,839,063 | 4,350,000 | 4,560,000 | | Plus: Year-End Net Present Value of Outstanding Equity Performance Awards Granted in the Covered Year | 8,799,126 | — | 1,878,336 | — | | Plus: Change in Net Present Value of Outstanding Equity Performance Awards Granted in Prior Years | — | 8,430,108 | 5,680,494 | 6,675,243 | | Plus: Change in Net Present Value of Equity Performance Awards Granted in Prior Years which Became Payable in the Covered Year | — | — | — | — | | Less: Prior Year Net Present Value of Equity Performance Awards Forfeited in the Covered Year | — | — | — | — | | Compensation Actually Paid | 12,256,554 | 12,269,171 | 11,908,830 | 11,235,243 |
PAY VERSUS PERFORMANCE
As we consider the Equity Performance Awards to have a fair value of zero as of the date of grant, no adjustments were necessary to deduct the grant date fair value of Equity Performance Awards from the Total Compensation reported in the Summary Compensation Table for any applicable year. There were no Equity Performance Awards which were granted and became payable in the same year and no dividends or other earnings paid on Equity Performance Awards in the covered fiscal year prior to the vesting date that are not otherwise included in the total compensation for the covered fiscal year. In addition, as our Non-CEO NEOs do not receive pension benefits, no adjustments were required with respect thereto. Column (f). Represents our cumulative total shareholder return (“TSR”) for the measurement periods beginning on June 16, 2020, the first trading day after our IPO, and ending on December 31 of each respective year. Column (g). Represents the cumulative TSR of our Biopharmaceutical Peer and Financial Services Comparator Groups as described above in “Compensation Discussion and Analysis” for the measurement periods beginning on June 16, 2020, the first trading day after our IPO, ending on December 31 of each respective year. Column (h). Reflects “Net Income attributable to Royalty Pharma plc” in our Consolidated Statements of Operations included in our Annual Report on Form 10-K. As the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry, our revenue is comprised mostly of income from royalty assets. Consequently, we did not use net income as a performance measure in our compensation program because we classify most royalty assets that we acquire as financial assets that are measured at amortized cost using the prospective effective interest method which can be volatile and unpredictable. We do not believe the relationship between our net income and compensation actually paid to our NEOs during the periods presented is a key metric for our investors. Column (i). Our Company-selected Measure is Portfolio Receipts Growth which is described below. For 2020, Portfolio Receipts Growth has been calculated based on twelve months ended December 31, 2019 figures presented on an unaudited pro forma basis, which adjusts certain cash flow line items as if Royalty Pharma’s Reorganization Transactions (as described in the Company’s final prospectus filed with the SEC on June 17, 2020) and its IPO had taken place on January 1, 2019. Refer to the section “Appendix A – Reconciliations of Non-GAAP Measures” in this Proxy Statement for reconciliation of this non-GAAP measure to its corresponding GAAP measure.
PAY VERSUS PERFORMANCE
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PAY VERSUS PERFORMANCE
Columns (j) and (k). We have also presented two additional financial measures—SG&A as % of Portfolio Receipts and Adjusted EBITDA Margin because they illustrate how compensation actually paid to our NEOs results in much lower SG&A versus our peers. Refer to the section “Appendix A – Reconciliations of Non-GAAP Measures” of this Proxy Statement for reconciliations of non-GAAP measures to their corresponding GAAP measure. Portfolio Receipts Growth was chosen from the following four most important financial measures used by the Manager to compare compensation actually paid to the CEO and Non-CEO NEOs to our performance. The other measures in this table are not ranked. As our CEO and Non-CEO NEOs are not compensated directly by us, Portfolio Receipts Growth and the other financial measures listed in the chart below reflect the financial measures utilized by, and reflect the decision of, the Manager, rather than by our Management Development and Compensation Committee.
PAY VERSUS PERFORMANCE
| Measure | Explanation | | Portfolio Receipts Growth | Portfolio Receipts is defined as the sum of royalty receipts and milestones and other contractual receipts. Royalty receipts include variable payments based on sales of products, net of contractual payments to the legacy non-controlling interests, that is attributed to us. Milestones and other contractual receipts include sales-based or regulatory milestone payments and other fixed contractual receipts, net of contractual payments to legacy non-controlling interests, that is attributed to us. Portfolio Receipts does not include proceeds from equity securities or proceeds from purchases and sales of marketable securities, both of which are not central to our fundamental business strategy. | | Portfolio Receipts | Portfolio Receipts is calculated as the sum of the following line items from our GAAP consolidated statements of cash flows: Cash collections from financial royalty assets, Cash collections from intangible royalty assets, Other royalty cash collections, Proceeds from available for sale debt securities and Distributions from equity method investees less Distributions to legacy non-controlling interests—Portfolio Receipts, which represent contractual distributions of royalty receipts and milestones and other contractual receipts to the legacy investors. | | Adjusted EBITDA | A non-GAAP liquidity measure comprised of Portfolio Receipts less payments for operating and professional costs. | | Portfolio Cash Flow | A non-GAAP liquidity measure comprised of Adjusted EBITDA less net interest paid/received. | | SG&A as % of Portfolio Receipts | Payments for operating and professional costs as a percentage of Portfolio Receipts. | | Adjusted EBITDA Margin | Adjusted EBITDA as a percentage of Portfolio Receipts. |
PAY VERSUS PERFORMANCE
See our Annual Report on Form 10-K for additional discussion on Portfolio Receipts, Adjusted EBITDA and Portfolio Cash Flow. In the “Compensation Discussion and Analysis” section of this Proxy Statement, we provide greater detail on the elements of the compensation program and the compensation philosophy of our Manager. We are externally managed and do not directly employ our executive officers. Please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.”
PAY VERSUS PERFORMANCE
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Relationship Between Compensation Actually Paid and Performance Measures
Relationship Between Compensation Actually Paid and Performance Measures The table below reflects the relationship between the CEO and the average Non-CEO NEO compensation actually paid and the performance measures shown in the pay versus performance table. With respect to the relationship between compensation actually paid and the performance measures described below, as noted above, our CEO Mr. Legorreta does not receive compensation for his services but instead, because of his ownership interest in the Manager, is entitled to certain profits of the Manager. Our Non-CEO NEOs are also not employed or compensated directly by us, but are instead employed by our Manager. The compensation of our CEO and Non-CEO NEOs reflect the decisions of the Manager, rather than by our Management Development and Compensation Committee. Moreover, we generally seek to incentivize long-term performance, and therefore we do not specifically align our performance measures with “compensation actually paid” (as computed in accordance with Item 402(v) of Regulation S-K) for a particular year. In accordance with Item 402(v) of Regulation S-K, we are providing the following descriptions of the relationships between information presented in the Pay versus Performance table.
Relationship Between Compensation Actually Paid and Performance Measures
| Period | Compensation Actually Paid to CEO(1) (%) | Average Compensation Actually Paid to Non-CEO NEOs (%) | TSR (%) | Peer Group TSR (%) | Change in Net Income (%) | Change in Portfolio Receipts Growth (%) | | 2022 to 2023 | (41.5) | (5.7) | (25.8) | 11.7 | 2,549.5 | 9 | | 2021 to 2022 | (19.8) | (2.9) | 1.1 | 12.9 | (93.1) | 31 | | 2020 to 2021 | 10.7 | 0.1 | (18.9) | 29.4 | (36.4) | 18 |
Relationship Between Compensation Actually Paid and Performance Measures
| (1) Amounts shown do not reflect year-over-year changes in the amount of profits of the Manager to which Mr. Legorreta was entitled because Mr. Legorreta does not receive employee compensation for his services. |
Relationship Between Compensation Actually Paid and Performance Measures
| • | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our TSR. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to a 25.8% decrease in our TSR over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 1.1% increase in our TSR over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 18.9% decrease in our TSR over the same time period. |
Relationship Between Compensation Actually Paid and Performance Measures
| • | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Net Income. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to a 2,549.5% increase in our Net Income over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 93.1% decrease in our Net Income over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 36.4% decrease in our Net Income over the same time period. In addition to analyzing our results on a GAAP basis, management also reviews our key performance metric, Portfolio Receipts, which represents our ability to generate cash from our portfolio investments, the primary source of capital that we can deploy to make new portfolio investments. See “—Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Portfolio Receipts Growth.” |
Relationship Between Compensation Actually Paid and Performance Measures
| • | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Portfolio Receipts Growth. From 2022 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to a 9% increase in our Portfolio Receipts over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 31% increase in our Portfolio Receipts over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 18% increase in our Portfolio Receipts over the same time period. |
Relationship Between Compensation Actually Paid and Performance Measures
| • | Relationship Between our TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group TSR. The TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group (described above in “Compensation Discussion and Analysis”) increased by 11.7% from 2022 to 2023 as compared to our TSR, which decreased by 25.8% over the same time period. The TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group increased by 12.9% from 2021 to 2022 as compared to our TSR, which increased by 1.1% over the same time period. The TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group increased by 29.4% from 2020 to 2021 as compared to our TSR, which decreased by 18.9% over the same time period. |
Relationship Between Compensation Actually Paid and Performance Measures
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Relationship Between Compensation Actually Paid and Supplemental Performance Measures
Relationship Between Compensation Actually Paid and Supplemental Performance Measures We generally seek to incentivize long-term performance, and therefore we are providing the following supplemental performance measures which reflect our performance-driven compensation philosophy.
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
| Period | Compensation Actually Paid to CEO(1) (%) | Average Compensation Actually Paid to Non-CEO NEOs (%) | Change in SG&A as % of Portfolio Receipts (%) | Change in Adjusted EBITDA Margin (%) | | 2022 to 2023 | (41.5) | (5.7) | — | — | | 2021 to 2022 | (19.8) | (2.9) | (0.7) | 0.7 | | 2020 to 2021 | 10.7 | 0.1 | (1.3) | 1.3 |
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
| (1) Amounts shown do not reflect year-over-year changes in the amount of profits of the Manager to which Mr. Legorreta was entitled because Mr. Legorreta does not receive employee compensation for his services. |
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
| • | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our SG&A as a % of Portfolio Receipts. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to no change in our SG&A as a % of Portfolio Receipts over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 0.7% decrease in our SG&A as a % of Portfolio Receipts over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 1.3% decrease in our SG&A as a % of Portfolio Receipts over the same time period. |
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
| • | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Adjusted EBITDA Margin. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to no change in our Adjusted EBITDA Margin over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 0.7% increase in our Adjusted EBITDA Margin over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 1.3% increase in our Adjusted EBITDA Margin over the same time period. |
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
The following chart demonstrates how our Adjusted EBITDA Margin compares to the EBITDA Margins of our Biopharmaceutical Peer and Financial Services Comparator Groups for the last four fiscal years.
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
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Relationship Between Compensation Actually Paid and Supplemental Performance Measures
| Proposal 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
| The Board recommends that shareholders vote “FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024. |
Relationship Between Compensation Actually Paid and Supplemental Performance Measures
Our Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024.The Audit Committee reviews the performance of the independent registered public accounting firm annually. In making the determination to appoint Ernst & Young LLP, the Audit Committee considered, among other factors, the independence and performance of Ernst & Young LLP, and the quality and candor of Ernst & Young LLP’s communications with the Audit Committee and management. Ernst & Young LLP has served as Royalty Pharma’s independent registered public accounting firm since 2022. Ernst & Young Global Limited’s Irish member firm, Ernst & Young previously served as the independent registered public accounting firm since our IPO and continues to serve as our statutory auditor in the United Kingdom. At the Annual Meeting, our shareholders are being asked to ratify the appointment of Ernst & Young LLP as Royalty Pharma’s independent registered public accounting firm. Although the appointment of Ernst & Young LLP does not require ratification, the Board has directed that the appointment of Ernst & Young LLP be submitted to shareholders for ratification because we value our shareholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and they will be given an opportunity to make a statement at the Annual Meeting if they desire to do so, and will be available to respond to appropriate questions.