Novartis said it cancelled an agreement with Daniel Vasella to pay him 72 million Swiss francs over the next six years to keep him from sharing his knowledge with competitors. The decision comes three days before the company’s board is to face investors at the annual shareholder meeting.
“We continue to believe in the value of a non-compete, however, the decision to cancel the agreement and all related compensation addresses the concern of shareholders and other stakeholders,” Novartis’s vice chairman, Ulrich Lehner, said in a statement.
The size of the planned payment, which was revealed last Friday, had outraged investors just two weeks before a Swiss referendum to give shareholders more power to determine executive compensation. Mr. Vasella had previously said that he would step down as chairman at Novartis’s shareholder meeting on Friday.
In a statement on Tuesday, Mr. Vasella said he understood that many in Switzerland found the amount of the compensation “unreasonably high, despite the fact I had announced my intention to make the net amount available for philanthropic activities.”
On Friday, Mr. Vasella had said the annual payments were “according to fair market value” and that it had been important to Novartis that he refrains “from making my knowledge and know-how available to competitors and to take advantage of my experience with the company.”
Swiss lawmakers and shareholder activists criticized the company over the weekend and on Monday for not making the amount of the planned payment public earlier. They also contended that the 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 Swiss francs, or about $13.4 million, a year, according to the company’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/2013/02/20/business/global/novartis-scraps-non-compete-payment-to-departing-chairman.html?partner=rss&emc=rss