Compensation (10K for FY/CY 2011 [update])

My original 10K for FY/CY 2011 post included comments regarding my estimate (educated guess) of FY/CY 2011 management compensation. It is difficult, or not easy, to put an exact number on total payroll (e.g., salary, cash bonuses, stock option awards, other compensation such as paid-out vacation, etc.) as I think payroll is divided up between R&D and G&A based on some estimate of who of management spends what amount of time where.

We'll have to wait until April -- likely late-April, but possibly as late as early-May -- for the company's proxy filing/Schedule 14A for specific compensation information. I think 2011 compensation was comparable to 2010, but the 10-K only specifically indicates that stock option expenses decreased year-over-year:

• Page 31: Research and development costs...for 2011 included payroll of $6,182,147... Research and development costs...for 2010 included payroll of $6,618,532... The decrease in payroll in 2011 over 2010 is primarily due to decreased stock option expense and decreased pension expense.

• Page 32: The increase is primarily due to increased investor relations expense of approximately $850,000 due to the expanded programs to improve investor awareness and visibility of the Company’s clinical progress as well as related travel expenses, offset by decreased pension and stock option expenses of approximately $500,000.

You may recall I blogged on the topic of comparing management compensation to other comparable companies last November, where comparable was defined as the companies Stonegate Securities recently used in their equity research note of mid-November (see here). My observations were that compensation in 2009 was below average, while 2010 compensation was higher than average. I espoused the view that I did not have much if any issue or concern with their compensation.

I still don't.

I understand the consternation some shareholders have with management's compensation, particularly when juxtaposed against the current and historical share price.

I don't disagree with these shareholders.

It's difficult for most people, whether so-called professional investors or retail ones, to view management compensation through the prism of time. Most people look at most things (investing or otherwise) at a snapshot in time, rather than in the much larger context of their investment thesis' monetization component. Management certainly is not helped by the stagnating and decreasing share price over the last 5 or so years. Connecting these dots -- higher than average compensation, a low share price for some time -- it's not unreasonable to wonder and complain about compensation.

If I could point to material bad behavior or questionable actions, compensation might then raise a red flag. But I can't, so it doesn't.

My prism of time can only be judged with the benefit of hindsight in the future, not now. If management does what I think they will do in terms of the magnitude of the monetization (i.e., the sale of the company to Pfizer or J&J or some other big pharma, the enterprise value of which would include the sale/license of the dermatology business), their compensation will have been well worth it.

If the outcome, if any, is far from optimal, then I will share the consternation of those disgruntled shareholders. But until then, if then ever comes, I don't care about that viewpoint.