Viatris Inc
For the period ended Dec 6, 2024. Filed Oct 25, 2024.
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Dec 6, 2024 · Filed Oct 25, 2024
Contents
2023 Long-Term Incentive Compensation Programs
Long-Term Incentive Compensation Grants for 2023
The Compensation Committee believes that the value of long-term incentives should be directly related to the performance of Viatris’ common stock over several years, as well as other measures associated with the growth, success, and long-term sustainability of Viatris. The Compensation Committee approved annual long-term incentive (“LTI”) award grants in the first quarter of 2023.
In 2022, we increased the percentage of performance-based awards (which are subject to a TSR modifier) from 60% to 65%, with 65% of each NEO’s award in the form of PRSUs and 35% in the form of RSUs, and we continued this practice in 2023. This increase in the allocation to PRSUs reflects a further reinforcement of ourpay-for-performance philosophy and our robust shareholder engagement. RSUs vest ratably over a three-year period following the grant date, and PRSUs vest as described below. This mix of LTI awards provides NEOs with a combination of incentives and aligns them with the interests of shareholders.
Each NEO’s 2023 LTI award had a targeted value at grant equal to a percentage of the NEO’s base salary. In setting each NEO’s LTI targeted value, the Compensation Committee considered a variety of factors, including, among others, peer group compensation and expectations regarding individual roles and responsibilities.
For 2023, the Compensation Committee approved the following annual LTI award values for our NEOs:
| NEO(1) | PRSUs | RSUs | Total LTI Award |
|---|---|---|---|
| Scott A. Smith | $7,280,000 | $3,920,000 | $11,200,000 |
| Rajiv Malik | $5,070,000 | $2,730,000 | $7,800,000 |
| Sanjeev Narula | $2,405,000 | $1,295,000 | $3,700,000 |
| Anthony Mauro | $2,236,000 | $1,204,000 | $3,440,000 |
| Brian Roman | $1,040,000 | $560,000 | $1,600,000 |
| Robert J. Coury | $7,605,000 | $4,095,000 | $11,700,000 |
| (1) | Mr. Goettler did not receive a long-term incentive award in 2023. |
2023 Three-Year PRSU Performance Metrics
The 2023 grant of PRSUs is subject to free cash flow and relative market performance metrics (i.e., relative TSR using the S&P 500 Pharmaceutical Index), which is used as a modifier to determine the final payout percentage,
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as described below. The free cash flow metric incentivizes effective use of Viatris’ capital to drive cash flow generation, encouraging behavior that is closely aligned with our efforts to drive a durable and sustainable business. In addition, the relative TSR modifier impacts executive pay based on Viatris’ performance as compared to industry competitors.
As shown in the table below, payouts under the 2023 PRSUs will be determined in two steps. First, in the first quarter of 2026, the outcome of the free cash flow metric will be assessed, resulting in an initial payout percentage of 50% for threshold performance (with 0% payout for below threshold performance) up to 150% for maximum performance, with linear interpolation for achievement between threshold and maximum. Second, the relative TSR metric will be applied as a modifier to the initial payout percentage, decreasing it by 30%, leaving it unaffected, or increasing it by 30%, in order to calculate the final payout percentage. The reduction in amounts in setting the free cash flow metric reflects the Company’s expectations regarding the negative impact on free cash flows resulting from previously announced divestitures.
| Metric | Weighting | Threshold | Target | Maximum |
|---|---|---|---|---|
| Free Cash Flow(1) | 100% | $6,000 million | $7,000 million | $8,000 million |
| Relative TSR of Peer Group(2) | Multiplier | At or Below25th Percentileof Peer Group | Between 25th and75th Percentilesof Peer Group | At or Above75th Percentileof Peer Group |
| Payout Opportunity (as % of Target) | 35% | 100% | 195% |
| (1) | Free cash flow is derived from Viatris’ audited financial statements in the same manner as the calculation for Viatris’ 2023 annual incentive program, except that the calculation for the 2023 PRSUs further adjusts for any of the following, as applicable: transaction costs and taxes related to certain acquisitions and divestitures as well as any incremental transaction costs and taxes related to other select asset sales or reshaping initiatives and other impacts of divestitures, unbudgeted restructuring costs, unbudgeted R&D expense, material unplanned litigation gains or losses equal to or greater than $25 million in the aggregate, changes in tax laws, and all impacts of material acquisition activities. Free cash flow for the 2023 PRSUs will be the sum of such free cash flow measure for each of the years ended December 31, 2023, 2024 and 2025 and will utilize budgeted foreign exchange rates for the relevant year. Viatris’ free cash flow as reported for the twelve months ended December 31, 2023 is reconciled to the most directly comparable U.S. GAAP measure in Appendix B. |
| (2) | Relative TSR is calculated by comparing the difference between Viatris’ 30-day trailing average closing ordinary share price at the day before the beginning of the performance period and day before the end of the performance period plus any dividends paid during the performance period against the same metric for each company in the S&P 500 Pharmaceutical Index. |
Payouts with respect to PRSUs granted in 2023 will be determined in early 2026 following the conclusion of the three-year performance cycle.
2021-2023 Three-Year PRSU Performance Metric Results
During the three-year period of 2021 to 2023, Viatris achieved the following performance against the Compensation Committee-approved performance goals:
| Metric | Weighting | Threshold | Target | Maximum | Results |
|---|---|---|---|---|---|
| Free Cash Flow(1) | 60% | $6,500 million | $7,500 million | $8,500 million | $9,500 million |
| Gross Leverage Ratio(2) | 40% | 3.14x | 2.99x | 2.84x | 2.84x |
| Relative TSR of Peer Group(3) | Multiplier | At or Below25th Percentileof Peer Group | Between 25th and75th Percentilesof Peer Group | At or Above75th Percentileof Peer Group | 21stPercentile |
| Payout Opportunity (as % of Target) | 35% | 100% | 195% |
| (1) | Free cash flow is derived from Viatris’ audited financial statements in the same manner as Viatris’ free cash flow (as reported), except that the calculation for the 2021-2023 three-year PRSUs utilized budgeted foreign exchange rates for |
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the relevant year and further adjusts for the following, as applicable: transaction costs and taxes related to the acquisitions of Oyster Point and Famy Life Sciences as well as any incremental transaction costs and taxes related to other select assets sales or reshaping initiatives and other impact of divestitures, acquired IPR&D costs, proceeds from the sale of property, plant and equipment, material unplanned litigation gains or losses equal to or greater than $25 million in the aggregate, all impacts of the transaction between Viatris and Biocon Biologics Limited pursuant to which Viatris contributed its biosimilars portfolio, composed of the Biocon collaboration programs, biosimilars to Humira®, Enbrel®, and Eylea®, as well as related assets and liabilities to Biocon Biologics Limited (the “Biocon Biologics Transaction”) following its consummation including results after closing and transaction-related costs, and sales of intellectual property up to $750 million annually in the aggregate. Free cash flow for the 2021-2023 three-year PRSUs is the sum of such free cash flow measure for each of the years ended December 31, 2021, 2022, and 2023. Viatris’ free cash flow as reported for each of the three years ended December 31, 2021, 2022, and 2023 is reconciled to the most directly comparable U.S. GAAP measure in Appendix B.
| (2) | Gross leverage ratio for the 2021-2023 three-year PRSUs is derived from Viatris’ audited financial statements in the manner described in Appendix B. |
| (3) | Relative TSR is calculated by comparing the difference between Viatris’ 30-day trailing average closing ordinary share price at the day before the beginning of the performance period and day before the end of the performance period plus any dividends paid during the performance period against the same metric for each company in the S&P 500 Pharmaceutical Index. |
The following table shows the 2023 PRSU share award payout for each NEO reflecting Company performance at 105% of target.
| NEO(1) | Actual Award (# of Shares) |
|---|---|
| Scott A. Smith | N/A |
| Rajiv Malik | 357,353 |
| Sanjeev Narula | 138,971 |
| Anthony Mauro | 158,824 |
| Brian Roman | 69,486 |
| (1) | Mr. Goettler did not vest in any portion of the 2021 PRSU grant based on his termination of employment. Mr. Coury vested in his 2021 PRSUs at target performance levels at the time of his separation from employment based on the pre-existing contractual terms of his Executive Employment Agreement relating to a separation from employment for “good reason”. |
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