7 Human Capital Management practices for a biotech CEO focused on people

In the life science sector, as within most industries, there is exceptionally high competition for talent. Talk with most biotech CEOs, and although they will likely be preoccupied with the tumult in global capital markets and the changing macro-picture, they will place talent in the top three issues they’re thinking about today. Although the capital environment has tightened over recent months, executives and boards remain optimistic about the abundance of great innovative science. Still, they are concerned they may not attract the people needed to execute their vision. The labour market remains stretched, and hiring high-calibre people is extremely hard. Keeping them is equally challenging once you have people on board, as voluntary turnover is up, and CEOs are reporting six to eight per cent adjusted annual compensation as they respond to the tight talent market against a backdrop of high inflation.

So how do company CEOs make their companies more competitive in the talent market? Many of the traditional actions that companies turn to still apply. Well defined jobs, competitively remunerated, with opportunities for advancement and development might be considered table stakes. But companies who perhaps considered themselves progressive before the pandemic by offering remote working and flexible work patterns have been partially neutralised by these now commonplace practices.

Employees in the life sciences sector are almost universally motivated by making a positive difference and helping patients. Companies who promote their commitment to being ‘patient-centric’, a biotech industry term that is virtually ubiquitous, need to walk the talk, but must also recognise this focus might not have the pulling power they envisage.   

Biotech and pharma CEOs have rarely dedicated enough of their time to understanding the human capital management practices central to building a highly-skilled, knowledgeable and motivated workforce that is developing, stable and healthy. It has traditionally been about the science, the funding and commercial viability of innovation. But the contours are changing, and this demands new capabilities from CEOs, boards and executive leaders.

Below, there are seven areas relating to human capital that CEOs should understand about their companies. If they don’t, then new recruits, employees, and their boards will ask – why not?

Embedding Innovation

The life sciences sector is renowned for its innovation. The industry derives its success and long-term sustainability from the innovative technologies and products it produces. However, any industry insider can point to companies that shot to notoriety through innovative breakthroughs but faded through a lack of sustained innovation. The process of innovating is almost always team and network-oriented. The narrative that surrounds life sciences companies is that innovation is an activity that originates in the research environment of the lab. Of course, innovation occurs equally in the development, manufacturing and commercial disciplines.

Current and future employees want to know the process and systems that a CEO is implementing to manage the innovative ideas of a company’s people and how it is leveraging open innovation to source and embed innovation in its strategy. CEOs should be able to effectively describe how they have implemented processes for employees, either individually or collectively, to develop and submit their innovative ideas or approaches. How are the most impactful ideas selected? What support do these ideas get in terms of time, resources and capital?

Innovation is a cornerstone for the industry, and the companies with the deepest commitment and most innovative technologies will raise their talent competitiveness. CEOs should be ready to talk about the amount of time employees are encouraged to spend on innovation, the number of full-time employees focused on research and development, and the company’s success in innovative throughput.

Compensation and Rewards

The level and competitiveness of your financial rewards are an essential part of your employment. But compensation is increasingly sophisticated. Most employees in life sciences will likely be compensated in the form of a salary, bonus or variable pay (either performance-related or discretionary), contributions to their retirement plan, stock and equity participation and awards, health insurance, plus other benefits. They may also be rewarded with additional inducements, such as long-term incentive plans, sign-on bonuses, company cars etc.

This list describes the many financial levers that CEOs can pull to reward employees. In many respects, it is a personal judgment whether you are fairly rewarded for the work. Individuals often make their assessments based on the best data available to them. When they see a deficiency, it becomes part of their broader calculus about their employment.

However, more critically, CEOs need to demonstrate an intricate grasp of the different compensation strategies they’re implementing and how they are material drivers of the company’s desire to create long-term value. Compensation strategies linked to integrated metrics used to reward effective human capital management practices by a company’s management and reduce the risks of poor human capital management are often a positive signal of a company’s commitment to its people.  

The financial incentives to encourage active management of human capital by executives and leaders are only a part of the consideration. The pay and rewards offered to non-management employees also indicate the company’s view of the connection between non-management employees’ compensation and value creation. Has the CEO/company a clear understanding of how adjusting the reward mix for both management and non-management employees may impact the Company’s long-term performance?

Human Capital Metrics

CEOs use data dashboards and KPIs to oversee almost all aspects of their business. With human capital, though, many CEOs lack important metrics that inform them about the people in their organisation or the people coming and going.

Tracking and monitoring critical human capital data is fundamental to having an effective human capital management strategy. There are very many different metrics that can be deeply informative, but here are a few select areas:

• Workforce Stability

Prospective employees are interested in joining healthy businesses with an engaged and motivated workforce. This can be a complex assessment for people inside the company, let alone outside. Prospective employees will typically respond well to a company that speaks to its rate of voluntary turnover, both in terms of the total workforce and by level and function – assuming the company is not losing talent at a significant rate. This transparency could extend to discussing the turnover rate of the high performers, retention rates of new starters, or skill areas that are strategic to the company’s mission. It must be clear to the CEO that the company effectively retains the right people with the skills, experience and performance to drive value.

• Recruitment Trends

Knowing a company’s effectiveness in the recruitment market is vital information. From recent and ongoing recruitment activities, what is the company seeing in terms of recruitment trends? Identifying the areas of the recruitment effort where the company is performing well and where it is not, can help shape the recruitment strategy.

CEOs often want their HR and Talent functions to generate higher numbers of candidates at the top of the funnel, hoping that they filter through to the hiring stage. However, what is vitally important is that the CEO and leadership understand the company’s recruitment yields via all recruitment channels. The yield reveals the company’s ability to move candidates from one stage of the process to another. This analysis reveals insights about when, how and why you’re winning or losing talent as you try to recruit.

• Workforce Composition

Understanding the composition of the workforce can tell a lot about the company. The way a CEO decides to employ permanent full-time and part-time staff versus contractors and consultants is valuable insight. But it is not only the mode of employment that is relevant but also the employee profiles and the roles they occupy. Where is the open headcount, and how does the CEO think about filling these positions relative to the business and human capital strategy? How is the CEO tackling diversity, equity and inclusion as part of the workforce composition mix (see separate section)?

• Workforce Advancement

Intrinsically aligned to the stability of the workforce, discussed earlier, is how people are advancing inside the company. A CEO who is deeply invested in the success of the company’s employees cares about giving opportunities for advancement based on meritocratic recognition and rewards. How does the company’s performance review process work? What steps has the company taken to ensure this review process is free from bias and that it rewards people equally?

The company’s CEO should oversee effective human resources processes, systems and policies, and how employees are advancing through the organisation is a good indicator of their capability. Have clear career paths been mapped out, with discernible criteria for advancement? What are the current promotion rates (by level, function, location, and underrepresented employees)?

A CEO should have a rich set of data points that indicate the state of the company’s human capital.

Diversity, Equity, Inclusion and Belonging (DEIB)

An organisation’s commitment to DEIB is undoubtedly challenging to assess, at least for non-employees. Most companies, including many large companies, currently offer little or no transparency about the composition of their workforce or disclose how they’re performing as a business based upon a more comprehensive set of DEIB metrics. What is sometimes evident is a company’s marketed intention via DE&I statements made on the company’s website or delivered publicly by the CEO in the media and other fora.

Most employees are more compelled to join companies where the evidence of action closely follows the words. This motive certainly applies in the DE&I realm. Citing statistics of the overall workforce composition as a declaration of a firm’s diversity can be a positive signal, but it often does not convey the full story, as it fails to highlight the areas or levels in which diversity shows up. CEOs must be able to speak with greater granularity about the diversity and representation by function, level, and location and the workforce’s retention, advancement, and mobility. Numbers can be telling, and the more comprehensive the picture, the more persuasive it will be.

However, metrics alone are often insufficient for a multi-dimensional issue like DE&I. Most important is creating a workplace that encourages full and active participation by every employee and where they can apply their smarts without the constant pressure to conform to the organisation’s social mean. Employees need to know their ideas, views, and experience is welcome, received and valued. Crucially, they must feel they belong.

The tone from the top is vital. The diversity of the leadership team and the direction set by the board and CEO indicate the cultural status of the company. The CEO should demonstrate an inclusive leadership style. There are varying models for inclusive leadership, but a CEO should be able to show high cultural intelligence, a focus on implementing de-biased processes and systems, and positively influence the work environment, culture and employees. In biotech, inclusive leaders need to act as innovation enablers by assigning ownership and accountability; and systematically accelerating learning and networking to enable advancement and mobility.

What is the CEO doing to create an inclusive culture? What are the values they are looking to ingrain? What is the evidence of employees experiencing an inclusive and belonging culture? While the metrics may speak to the status and progress, the employee’s lived experience will drive engagement levels and contribute to a sustained diverse employee base giving their best to the mission.

Historically, D&I was an issue CEOs wanted to delegate to their human resources functions. It is now a high-priority topic that CEOs should take personal ownership and accountability for and promote to their board agenda. DE&I is complex, but CEOs need to show leadership and unwavering commitment. Failure to do so will demote their companies from the league of desirable employers.

Skills, Training, Development and Learning

People are driven to improve their capabilities, and this personal development is equally valuable for companies. Many companies speak of their commitment to employee training to hook in new employees. A CEO needs to be across the metrics showing an improving workforce due to learning and development. It is too superficial for CEOs to speak in generalities about training or simply frame staff training in the context of inputs. CEOs grappling with the human capital dimensions of their business should understand where and how training and development are being deployed and how this translates into improved capabilities among the workforce. How is training leading to improvements in the knowledge and skills of employees and their ability to serve the company’s objectives?

Life sciences companies are at the forefront of innovation. Such companies are building value from employees’ deep knowledge and advanced skill. The innovation that can materialise from the continuous application of the employee’s skills underpins the company’s value, requiring employees to be trained and developed. 

The level of investment in individuals is a measure of how serious the company takes the issue of training and development. What are the total training hours received for full-time, part-time and contract staff? Similarly, what is the total spend per employee? What percentage of employees complete their training? How many receive promotions within 12 or 24 months of completing significant training?

Capturing this information helps a company’s CEO sell a clear view to prospective and current employees that the company is serious about personal development. It also sends a message to the board and investors, that a CEO is committed to retaining and growing the valuable capabilities contributing to the company’s value.

Employee Wellbeing

One of the issues scaling the priority list for individuals and leaders alike is the matter of wellbeing. The pandemic has magnified the importance of employee health and wellbeing. CEOs must acknowledge this and have it on their radar. It is now evident that a healthy workforce is a more engaged workforce, resulting in many benefits for the employer and employee. But there remains great variability in how companies implement wellbeing strategies and what they do to monitor the processes that track health and wellbeing.

Many companies differ in their definitions of health and wellbeing. At a basic level, best practices on wellbeing should encompass health and safety, including psychological safety. An area of progress in wellbeing programs has been the expansion beyond the realm of physical health into mental health. Equally, a workforce’s social connectivity leads to relationships that contribute to meaning, satisfaction and engagement. A CEO tuned into these nuances will already measure the impact these strategies have on absenteeism, employee pulse surveys, voluntary turnover, productivity, and workplace disputes or legal action. What mechanisms does the company have that track the main outcomes directly associated with the wellbeing program? Does the company measure the return on its investment in wellbeing?

CEOs must recognise the importance of balancing the ingredients of effective wellbeing strategies and practices. The development of effective engagement and communication that educate employees about risks to their wellbeing and contribute to wellbeing protections and open feedback channels that promote dialogue around wellbeing is vital. Equally valuable are policies providing access, structure and procedures which encourage employee engagement in the firm’s wellbeing programs. CEOs and leaders must embed effective monitoring and surveillance to see whether programs and practices are working well or not. The CEO should focus on providing equitable wellbeing for all employees, and that these programs are actively participated in across the company.

Rewarding CEOs for Human Capital Management

Explore most biotech CEOs bonus structures, and you will find them quite rightly linked to value-creating events, such as funding, partnerships and alliances, research and development milestones, or commercial goals. These are all important drivers of a company’s overall success, but they are rarely the sole responsibility of the CEO. For any of these value drivers to materialise, the people core to the company’s mission, need to be highly productive.

It could be argued that unless the CEO is looking after the workforce, none of these value drivers is remotely possible, and so implicit in the objective setting is a need to build an engaged, skilled, knowledgeable, and healthy workforce. However, it does not always follow these aims are satisfied by set objectives.

At Novartis, as an example, the CEO has 20% of his annual bonus linked to People and Culture. In his case, showing progress on equal pay, increased representation, pay transparency, employee engagement, and organisational culture were all factors in meeting the objectives. This introduces integrated accountability for human capital management. It shows the CEO has ownership of these success metrics, and the board and investors are holding them accountable.

Without personal accountability, either hardwired in the form of performance goals or a strong board that has shown commitment to human capital management oversight, the CEO is less likely to prioritise human capital.

In 2022, BMS CEO, Giovanni Caforio, saw his cash incentive drop owing to the company’s performance lagging in the area of human capital. This led to a 73% payout against this specific goal, having failed to meet the quatitative human captial goal that focuses on employee engagement and retention by incorporating employee surveys and voluntary attrition rate.

For CEOs focused on the matters they consider central to the survival and prosperity of their company, it is easy to dismiss the significance of many of the ideas set out in this article. Many CEOs would argue that they do the very best they can in leading the team and creating a workplace that they believe will attract and motivate staff. But people issues have shown to be incredibly impactful on biotech businesses over recent years, and while cyclical changes may bring slight relief in the availability of human resources, the long-term trends are clear for all. Our growing understanding of what drives company performance and how critical human capital is in that endeavour means CEOs must take a more sophisticated approach.

People matter a great deal. If human capital sat on the balance sheet, possibly it would get a different treatment from leaders responsible for this vital resource. CEOs who possess the belief that people are a company’s most important asset and exhibit this commitment in the actions they take will increasingly reap the advantages.

Liftstream is an executive and board level search firm exclusively serving the global life sciences sector.