Swiss pharmaceutical giant Novartis AG (NVS) said that it has come to terms with outgoing chairman Daniel Vasella to abandon a “no compete” agreement and pay package that would have netted Vasella 12 million Swiss francs over the next six years (US$77.98 million). The move, much to the dismay of Novartis, comes amidst an investor uproar over the weekend about dolling-out the cash to Vasella ahead of an annual Novartis shareholder meeting on February 22.
Vasella is expected to formally step down at the investor meeting.
“We continue to believe in the value of a non-compete, however, we believe the decision to cancel the agreement and all related compensation addresses the concerns of shareholders and other stakeholders,” said Dr. Ulrich Lehner, vice chairman at Novartis, in a statement Tuesday. Lehner will serve as interim chairman until August 1, 2013, a date when a permanent (and still unelected) replacement is expected to assume the position.
Vasella has been heavily criticized as a model of “fat cat” executive salaries that are up for a vote in less than two weeks in Switzerland to impose guidelines on executive pay in which shareholders will have a greater voice. The referendum includes 24 changes to corporate law, including, but not limited to, putting an end to exorbitant “golden hellos” and “golden parachutes,” two terms used to give incoming and outgoing executives huge payments.
Ultimately, the bold move, if approved, would give Swiss investors more power than ever before in the companies that they hold a stake. In the simplest terms, amongst other things, the Swiss are looking to address the question that many Americans ask of public companies: “If that company needs a bailout, is going bankrupt, or desperately struggling under the current management, why are they receiving multi-million dollar salaries and bonuses?” or “Should failure be rewarded?”
Corporations generally make the argument that they must maintain competitive pay and bonus structures to attract and keep top talent, a view many people view as more of a blanket statement to support high salaries for less-than-practical reasons.
Of course, corporate Switzerland is extremely against the proposals instigated by politician and entrepreneur Thomas Minder. Once figured to not have a snowball’s chance in Hades of passing because of opposition from politicians and behemoth corporations like Nestle (NSRGY) and Credit Suisse (CS), the public seems to be getting on board with the idea. Recent polls show well over half of Swiss voters favor the initiative.
All ethical or business arguments from either party aside, it’s basically undeniable that the system is out of kilter globally and in need of some reform. What Switzerland is bringing up for vote may not be a perfect solution as it could undermine the authorities of the board of directors, but it could also be a step in the right direction. One thing’s for sure..if it the proposal does gain approval; things are going to get interesting in public entities in Switzerland.
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