MADRIGAL PHARMACEUTICALS INC

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2024 Long-Term Incentive (“LTI”) Structure Evolution and Overview

We evolved our long-term equity incentive program in 2024 to provide a mix of time-based restricted stock units (“RSUs”), stock options, and performance-based restricted stock units (“PSUs”), with each comprising one-third of the total award mix. The Compensation Committee determined that this mix of equity compensation was the most appropriate award approach for fiscal year 2024 to address our continued maturity as we transition to commercialization, motivate our executive officers and align executive performance with interests of stockholders.

Linear interpolation will be applied to determine the payout between the minimum and target performance levels and the target and maximum performance levels.

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Compensation-Setting Process

The Compensation Committee assists the Board in fulfilling its fiduciary responsibilities with respect to the oversight of our compensation plans, policies and programs, especially those regarding executive compensation and employee benefits.

The Compensation Committee reviews executive compensation annually to evaluate whether each compensation component and overall total compensation continue to align with our overall compensation philosophy.

As part of this process, our Chief Executive Officer makes recommendations to the Compensation Committee with respect to the compensation levels for individual executives other than himself. The Compensation Committee reviews this information and adjusts or approves the recommendations as appropriate. In making its compensation determination for each NEO, the Compensation Committee considers a number of factors, including:

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recent corporate performance;

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market data regarding executive compensation at comparable companies;

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individual performance, leadership and contributions to our business and strategic performance; and

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changes in the scope or breadth of an executive officer’s role or responsibilities.

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Beginning in 2016, the Compensation Committee has retained the services of Compensia as a compensation consultant. Compensia assists the Compensation Committee in defining the appropriate peer companies for executive compensation and practices and in measuring our executive compensation program against the peer group. The Compensation Committee uses the information obtained from Compensia primarily for evaluating our executive compensation practices, including measuring the competitiveness of our practices. The Compensation Committee also uses information obtained from Compensia to review our cash bonus policy, equity awards, and base salary benchmarks across all levels of the Company. The Compensation Committee determined that Compensia was independent pursuant to SEC rules and the corporate governance rules of Nasdaq and concluded that no conflict of interest exists that would prevent Compensia from independently representing the Compensation Committee.

Comparative Analysis

For purposes of measuring the competitive positioning of our compensation packages, the Compensation Committee assesses our compensation practices and total direct compensation, including base salary, cash incentives and equity-based incentives, as compared to those of our peer group. The Compensation Committee, with input from Compensia, selects peer companies using the following primary criteria: publicly held pre-commercial or early-commercial United States biotechnology or pharmaceutical companies; companies that fall within a specific market capitalization range relative to our market capitalization at the time of the peer evaluation; and companies with revenues of not more than $1 billion to provide for an appropriate number of potential peers. Because the biotechnology industry is a dynamic industry, the Compensation Committee annually reviews and, if necessary makes updates to, our peer group to ensure that the companies included continue to meet the established criteria.

Following positive topline data readouts and a significant increase in our market capitalization in late 2022, in September 2023 the Compensation Committee made significant changes to the peer group to be used for 2024 compensation decisions to reflect our increased size. The selected companies had market capitalizations between $1 billion and $12 billion and generally had revenues of less than $500 million. The Compensation Committee determined that Agios Pharmaceuticals, Cara Therapeutics, Cytokinetics, FibroGen, Global Blood Therapeutics, IVERIC bio, REGENXBIO and Travere Therapeutics were no longer appropriate peers based on their low market capitalization relative to our criteria.

The following peer group was used in connection with compensation decisions made by the Compensation Committee in January 2024 relating to base salary adjustments, target annual incentive adjustments, and annual LTI awards.