The Mylan EpiPen
Photograph by Lucas Trieb — AFP/Getty Images
By Lucinda Shen
September 1, 2016

Are Mylan’s (myl) financial incentive plans to blame for its recent EpiPen price hike? That’s what Ronny Gal, an analyst at Sanford C. Bernstein & Co., suggested in an interview with the Wall Street Journal on Thursday.

In 2014, Mylan announced it would reward some 100 employees and executives for not only hitting, but exceeding aggressive profit targets. The company’s top five executives could earn as much as $82 million, according to the WSJ.

But in order to reap that reward, Mylan’s stock price had to hit $73.33 by the end of 2018 on adjusted earnings per share (EPS) of at least $6—more than double the firm’s EPS in 2013. If Mylan fell short, employees could still earn 50% of those rewards if the company announced both a $5.40 EPS and at least a $53.33 stock price by the end of 2018.

Considering 90% of Mylan’s revenue came from mature medicines at the time, those targets would have been hard to hit. (The EpiPen represents roughly 10% of Mylan’s revenue, and 20% of its operating profits.)

“Mylan realized that their EPS targets will be tougher to reach and decided to raise prices on EpiPen to make that target more achievable,” Gal told the Journal.

 

This incentive plan was in addition to the annual one, which decided executive compensation based on the company’s annual adjusted earnings, free cash flow, and global regulatory submissions, which measures the number of filings submitted to governments for new products.

So how exactly does that work? Let’s use CEO Heather Bresch‘s 2015 pay from regulatory filings as an example.

If Mylan were to hit its self-set “minimum” performance target in 2015 (which included an adjusted EPS of $4), Bresch would get a reward worth 75% of her base salary. If she hit the company’s “prime” target with an adjusted EPS of $4.15, she would get 150% of her salary. If Bresch hit the maximum target, which included an adjusted EPS of $4.30, the reward goes up to 300% of her salary.

In 2015, Bresch earned another $3.9 million based on the company’s performance, for a total salary including stocks, options, and base salary worth $18.9 million. Between 2007 and 2015, Bresch’s annual compensation increased by 670%. And judging by Mylan’s 2015 proxy filing with the Securities and Exchange Commission (SEC), its executives beat even the maximum targets set by the firm in all three metrics—EPS alone grew 29%.

Between the time the special incentive plan was announced in 2014 and 2016, the price of the EpiPen has more than doubled. Mylan also hiked prices for 24 of its other drugs by 20%. It was 100% on seven of the company’s other products, according to a June analysis by Wells Fargo analyst David Maris.

Mylan denied that idea, and released a statement to Fortune that said the target $6 EPS by 2018 is “not practically achievable based on pricing of any single product.”

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