October 25, 2021

For Daniel Vasella of Novartis, $78 Million to Keep Secrets

 The announcement of the payment to the chairman, Daniel Vasella, was made on Friday, just two weeks before a Swiss referendum to give shareholders more power to determine executive compensation. Mr. Vasella, who had previously said that he would step down as chairman at Novartis’s annual shareholder meeting on Feb. 22, is to receive the sum, 72 million Swiss francs, over six years.

 In a statement on Friday evening, Mr. Vasella said that “it has been very important to Novartis that I refrain from making my knowledge and know-how available to competitors and to take advantage of my experience with the company.” He added that the annual payments were “according to fair market value” and that he decided to use the money for “philanthropic activities.”

  Swiss lawmakers and shareholder activists criticized the company over the weekend for not making the amount public earlier. They also contended that the planned payment was just the latest of several bad decisions by Novartis on executive pay. Ethos, a Swiss group of investors, on Monday called on Novartis to immediately cancel the contract with Mr. Vasella and take back any money already paid.

 Christophe Darbellay,  president of the Christian Democratic People’s Party, told a Swiss newspaper, SonntagsZeitung, that Mr. Vasella’s compensation was “beyond evil.” Simonetta Sommaruga, the Swiss federal justice minister, told another newspaper, SonntagsBlick, that the payment was an “enormous blow for the social cohesion of our country” and that such “help-yourself mentality” was damaging confidence in the economy.

 Even before the latest revelation, Mr. Vasella’s pay had been at the center of shareholder complaints. Mr. Vasella is currently receiving 12.4 million francs (about $13.4 million) a year, according to the firm’s 2012 annual report. The board has promised to consider changes in the way it pays its senior executives next year.

 Pressure on companies to cut executive pay and give shareholders a greater say on the compensation levels is mounting. Recent opinion polls showed that Swiss voters were likely to approve changes at a referendum on March 3 that would effectively allow shareholders to determine executive pay. The referendum also proposes no payments when new executives join or executives leave and no payments in advance.

 At least five of Europe’s 20 highest-paid chief executives work for a Swiss company, including the food company Nestlé and the drug maker Roche, according to Bloomberg News. Swiss business lobby groups warned that such a change would harm the Swiss economy by discouraging companies from moving business to Switzerland.

 

 Mr. Vasella helped orchestrate the merger between Sandoz and Ciba-Geigy that created Novartis in 1996 and was chief executive of Novartis for 14 years after that. He was named chairman in 1999. Jörg Reinhardt, who was once in the running to become the Novartis chief executive but then left to run the drug division at Bayer, is to replace Mr. Vasella.

Article source: http://www.nytimes.com/2013/02/19/business/global/for-daniel-vasella-of-novartis-78-million-to-keep-secrets.html?partner=rss&emc=rss

DealBook: Efforts to Rein In Executive Pay Meet With Little Success

Harry Campbell

Executive pay continues to skyrocket despite years of criticism by corporate governance gurus, fierce efforts by unions to temper compensation and calls by politicians to regulate pay.

Given these failures, perhaps it is time to ask whether critics’ actions have actually driven executive pay higher.

The Dodd-Frank financial regulatory overhaul was supposed to be a victory for those who deplore high executive pay when it is not justified by company performance. The law tries to provide shareholders with more input by requiring that public companies hold “say on pay” votes. These votes are nonbinding, but they allow shareholders to express an opinion on compensation policies.

The rule comes after years of efforts by the Securities and Exchange Commission to regulate executive compensation. The S.E.C.’s most robust move occurred in 2006, when the agency mandated rigorous disclosure of compensation, including perks like free country club memberships. A company can now fill 10 to 20 pages in its annual proxy statement detailing executive pay.

These are all well-intentioned efforts to end unjustified, egregious compensation packages and ensure that they do not lead to excessive risk-taking.

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But evidence of success is scant. According to the research firm Equilar, the median compensation for chief executives at 200 large companies was $10.8 million in 2010. This was a 26 percent increase from the previous year, which was preceded by a rare decline in 2008.

Still, the Standard Poor’s ExecuComp database shows that executive pay rose about 300 percent from 1992 to 2007. This compares with growth in the same period of about 14 percent in the inflation-adjusted real wages of college graduates, according to the Economic Policy Institute.

The latest “say on pay” endeavor has turned into a costly exercise that validates almost every companies’ pay practices. FactSet Sharkrepellent found that through June 30 of this proxy season, shareholders rejected pay plans in only 39 out of 2,502 companies, including well-known companies like Talbots, Hewlett-Packard and Stanley Black Decker.

Still, this is a 98.5 percent approval rate. I’m sorry, but I’m a bit cynical that 98.5 percent of any group is doing the right thing.

Justice Louis D. Brandeis famously wrote, “Sunlight is the best disinfectant.” But for compensation, it has had a perverse effect.

Chief executives tend to view themselves as residents of Lake Wobegon, where all children are above average. Disclosure gives them an arsenal to make perception reality. The compensation details of their counterparts provides them with the leverage to request a higher amount from boards. The result: each year executive pay rises ever higher and the industry average is reset.

Meanwhile, there has been a major movement to ensure that boards appropriately set compensation, with independent directors tasked with the job. Yet even these independent board members are often not in an effective position to push back forcefully. The chief executive runs the company. And a few extra million dollars is often not worth debating when much more is at stake in terms of profits. It doesn’t help their objectivity that independent directors may be using the same strategy to increase their salaries at their own full-time jobs.

Instead, compensation becomes a process-driven exercise in which the way it is paid — in cash, options or restricted stock — is most important. The final arbiter then becomes yet more costly pay consultants who rely on the same disclosures to determine excessive compensation.

As owners, shareholders should be the parties with the most interest, but the evidence does not bear this out. It takes time, money and research to effectively monitor executive compensation. For a big institutional shareholder that owns only 1 or 2 percent of a company, the economics just don’t make sense.

Instead, pensions, money managers and the like subscribe to Institutional Shareholder Services and other proxy advisory services. But the firms often focus on the structure of compensation and how tied it is to performance, not the absolute amount.

Even then, I.S.S. recommended in this proxy season that shareholders vote no on compensation at only about 12.7 percent of Russell 3000 companies, a recommendation that appears to have been mostly ignored. As of June 30, shareholders have refused to follow 90 percent of I.S.S. recommendations to vote no.

The consequence is that shareholders with a say on pay are validating spiraling executive compensation at significant cost to public companies.

This is not to say things are all bad. There appears to be some give and take on approving pay. Some companies have revised their policies in the days leading up to shareholder votes. Both General Electric and the Walt Disney Company made changes to their compensation structures in the face of dissent.

Moreover, the new regulation has defined clear processes for determining executive compensation to ensure that the country club back-slapping of earlier years is not followed. In Britain and Australia, where say on pay already exists, it has not stopped the upward spiral of compensation, but there are assertions that this has tightened the link between pay and performance.

There is certainly a movement in this direction by companies in the United States, and there is evidence that executive pay is more tightly aligned with performance than it was 20 years ago. Another good sign: almost 80 percent of shareholders who voted on executive pay at Russell 3000 companies endorsed an annual shareholder vote as opposed to one every three years, according to I.S.S.

Executive pay should reward good performance. A man like Steven P. Jobs, who helped create hundreds of billions of dollars in wealth at Apple, should be compensated commensurately. But Philippe P. Dauman at Viacom was awarded $84.5 million, including $31.65 million in restricted stock compensation, last year for grants over five years. Will Viacom really earn enough through “Jersey Shore” spinoffs to justify this number?

In some cases, high compensation is appropriate; other cases, not. It also may be that the current system forces companies to tie pay more tightly to performance (a good thing) while driving up the absolute numbers.

But if the goal of these collective efforts is a reduction in compensation, the results are quite disheartening.

Article source: http://feeds.nytimes.com/click.phdo?i=6a97ed6e06f4107cb7a095c1a77133ef

Economix: Labor Puts Executive Pay in Spotlight

Richard Trumka, the A.F.L.-C.I.O. president, at a rally on Monday.Alex Wong/Getty Images Richard Trumka, the A.F.L.-C.I.O. president, at a rally on Monday.

The A.F.L.-C.I.O. has long been happy to treat executive compensation as a punching bag, and a Web site it put online Tuesday lands a few new punches.

The site, 2011 Executive Paywatch, notes that total compensation for C.E.O.’s averaged $11.4 million in 2010, up 23 percent from the previous year, based on the most recent pay data for 299 major companies.

The Web site notes that the C.E.O.’s at those 299 companies received a combined total of $3.4 billion in pay in 2010, enough to support 102,325 jobs paying the median wage.

With this ammunition in hand, the A.F.L.-C.I.O. said that “while C.E.O. pay is still out of control,” the nation’s “shareholders now have new tools to fight back. C.E.O.’s must now give their shareholders a ‘say on pay,’ thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act that President Obama signed in July 2010.”

The labor federation clearly loves the fact that Section 953(b) of Dodd-Frank “requires companies to disclose the ratio of C.E.O-to-worker pay for their median employee.”

Richard Trumka, the federation’s president, said, “Despite the collapse of the financial market at the hands of executives less than three years ago, the disparity between C.E.O. and workers’ pay has continued to grow to levels that are simply stunning.”

The Web site notes that chief executives’ compensation is 343 times the median pay — $33,190 — of American workers. It adds that the $11.4 million average for C.E.O.’s is 28 times the pay of President Obama, 213 time the median pay of police officers, 225 times teacher pay, 252 times firefighter pay, and 753 times the pay of the minimum-wage worker.

Citing Emmanuel Saez, an economist at the University of California, Berkeley, the Web site says: “The increase of income inequality leading up to the 2008 financial crisis and ‘Great Recession’ is striking. Between 1993 and 2008, the top 1 percent of Americans captured 52 percent of all income growth in the United States.”

On the new Web site, the A.F.L.-C.I.O. singled out several C.E.O.’s that it turned into case studies. There was Ray R. Irani of Occidental Petroleum, with compensation of $76,107,000, and Michael S. Jeffries of Abercrombie Fitch, with compensation of $36,335,000. Showing an evident desire not to discriminate against women, the labor federation also cited Susan M. Ivey of Reynolds American at $23,813,000.

Labor, of course, is not alone in its use of the Web to appeal to hearts and minds on workplace issues. The U.S. Chamber of Commerce has produced sites like the Campaign for Free Enterprise in its push to create a more favorable business environment. (A section of the chamber’s site dedicated to reducing regulations includes a board game where one obstacle is the Labor Lagoon.)

The A.F.L.-C.I.O. clearly hopes to use its new site along with provisions in the Dodd-Frank legislation to press corporate boards to rein in C.E.O. salaries or to give workers large raises or both — whatever it takes to reduce the C.E.O.-to-worker disparity.

“Pay-ratio disclosure will encourage boards of directors to focus on their internal compensation structures,” the labor federation states on the site. “This information is important to investors because high C.E.O.-to-worker pay disparities hurt employee morale and productivity.”

Article source: http://feeds.nytimes.com/click.phdo?i=f03d65665913623c7188f63bd9c6e811