- guardian.co.uk, Wednesday 5 May 2010 20.50 BST
Bart Becht, the publicity averse boss of Reckitt Benckiser, behind brands such as Cillit Bang bathroom cleaner, Air Wick air fresheners and Finish dishwasher tablets, will tomorrow grit his teeth and face down a shareholder rebellion against his record annual pay package worth £91.5m.
A Guardian analysis of Becht's cash and shares rewards shows how group earnings growth, the main measure of his performance, received a huge boost over recent years from a little talked about legacy division which makes large profits from exclusive rights to sell a heroin substitute called Suboxone, an alternative to methadone, in the US.
While Becht has taken credit for the stellar performance, the business benefited hugely from the good fortune of being in the right market at the right time as drug addict numbers rose and US healthcare regulators relaxed rules on the sale of Suboxone.
Years of soaring earnings growth have led to Becht receiving rewards totalling £173m over four years, a (non-inflation adjusted) average of £43.1m. This is more than double the 2009 cash and share awards enjoyed by the highest paid chief executive among Reckitt's peer group companies named in its annual report. William Weldon, boss of US firm Johnson & Johnson, received a pay package valued at £19m for 2009. J&J has a market capitalisation four times that of Reckitt.
Becht, who rarely meets the press, will appear at the annual meeting at Heathrow tomorrow morning with fellow directors before an audience of small shareholders. Last year 16% of shares voted at the annual meeting were cast against or in protest at Reckitt's remuneration policy — despite a 25% reduction in performance rewards to Becht. The vote comes the day after 36% of shareholders at Xstrata voted against or in protest at the group's boardroom pay policy. Its chief executive Mick Davis received £29m in cash and shares last year.
Investor advisory group Pirc has recommended its members, many of them local government pension funds, oppose Reckitt's boardroom payouts. "We regard these awards as highly excessive. At the same time, there is no indication that any schemes are in place allowing all employees to benefit from the success of the company at no cost to themselves."
The Cillit Bang firm has repeatedly justified Becht's bonanza pay rewards — which are regularly in excess of other FTSE 100 remuneration packages – by insisting that as an international group, Reckitt needs to have similar executive pay structures to US multinationals. However the average chief executive pay for Reckitt's six named peers — J&J, Clorox, Colgate Palmolive, Procter & Gamble, Sara Lee and Church & Dwight — was valued at £10.3m last year.
Guardian analysis also shows Becht received maximum performance payouts last year after Reckitt overshot the top end of a range of three-year earnings growth targets by 280%. Corporate governance experts such as Pirc insist the target is simply not stretching enough. Of Reckitt's six named peers, four also beat Reckitt's "exceptional performance target" — three of them by more than 65%.
Presented with the Guardian's analysis, Reckitt revealed that its benchmark peer group was much wider than the six US companies named in its annual report, including a further eight groups. The company believes Becht's pay — which last year included performance payouts equivalent to more than 90 times his basic salary — is among the most closely aligned with the interest of its shareholders.
One of the main drivers of Reckitt profits growth in recent years has been the once obscure legacy business known as the Buprenorphine Business Group (BBG). It owns two drugs – Suboxone and Subutex – for which Reckitt & Colman won US regulatory approval in 1994.
The drugs did not come to market until 2002 — three years after Becht led the merger of Dutch group Benckiser and Reckitt & Colman. Helpful changes in the US legislation, which increased the number of patients a doctor could prescribe with the drugs from 30 to 100, projected BBG onto a more profitable route.
In 2004 the pharmaceutical business generated £89m of sales. In 2009 sales had grown to £588m, and those sales were achieved with an ever increasing operating margin, widening to 63.1% in 2009. Operating profits, which stood at £118m in 2007, increased to £371m in 2009. Although the renamed Reckitt Benckiser Pharmaceuticals (RBP) accounts for less than 8% of the group's total sales it contributes 20% of group operating profits. More than 46% of the growth in the group's operating profits in 2009 was contributed by RBP's two drugs
With the latest official US data suggesting almost 4 million people have used heroin and 35 million have misused pain killers, the market is growing and, with no rival generic drug to challenge Suboxone, the group's arguments that it could lose 80% of its revenue from this market begin to look conservative.
Becht's £91.5m pay package is equivalent to more than 12% of the total 2009 Reckitt wage bill for the employment of a 24,900-strong workforce; it is more than 3,000 times the average wage of £30,000. The Dutchman, who rarely speaks to the press, was already the best paid executive of any FTSE 100 firm in 2008 when he received £36.8m. "This is not a one-man show," he says of the company.
'Rich man's methadone' has a niche to itself
Suboxone is a heroin substitute that has spawned an entire online community that offers advice on everything from using it to kick a heroin habit to ways of getting a cheaper high.
While the majority of Suboxone users are genuinely attempting to rid themselves of an addiction, there is a significant number of people who see it and its bedfellow, Subutex, as a dealing opportunity.
The drug – often referred to in the US as "the rich man's methadone" because it is so expensive, but more commonly known as "sub" or "stop" because the tablet is the shape of a stop sign – has its own website, provided by Reckitt Benckiser, offering practical advice on how the drug can help battle opioid dependence. But there are also websites offering to help users rid themselves of their addiction to Suboxone itself. A residential detoxification course will set you back $35,000 (£23,000).
Although the active ingredient in Reckitt's two drugs has been around as a painkiller since the 1980s, its current incarnation as a treatment for addicts was only launched in the US in 2002. Reckitt used US legislation to bring the drugs to market with statutory backing and protection from competition. Its two products qualified for "orphan drug" status even though their target market is more than the 200,000 maximum stipulated by the "orphan" rules, which are designed to encourage companies to develop drugs for diseases with only a small number of sufferers.
This allowed RBP seven years as the monopoly supplier in a country where almost 4 million people have used heroin at some point in their life, according to a survey two years ago. The protection expired in October but there is no sign of generic competition despite Suboxone users complaining on their internet forums about the cost of their treatment and begging for a cheaper alternative.
A US company has produced a generic rival for the much less popular Subutex, but Suboxone is more widely used because it includes an ingredient that is designed to prevent abuse. If a user attempts to inject Suboxone, the additional ingredient creates a side effect that brings on immediate withdrawal symptoms. The Subutex market is worth a little over $60m but RBP has annual revenues in excess of $800m.
Subutex, however, is more open to abuse and has achieved notoriety in Britain where it is preferred as a substitute for methadone, even threatening to become the substance of choice in Britain's prisons.
A Home Office report examining the problem of drugs in prisons quotes one former inmate as saying: "Subutex is a problem now; people would rather buy Subutex than heroin. Everyone was being pressured for it."