Novartis AG (NYSE:NVS) (VTX:NOVN) has scrapped its plan to pay 72 million Swiss francs ($78 million) to the outgoing chairman Daniel Vasella due to rising pressure from the company shareholders.
The Swiss drugmaker and Vasella had agreed on a non-compete agreement that would keep him from sharing his experience and know-how with a competitor over the next six years. In return, the Basel-based company had agreed to pay Vasella $13 million every year for the next six years. The deal has now been abandoned.
The Swiss government is already considering giving shareholders of Swiss companies more power to determine executive compensation. The planned payment to Vasella was made public last Friday. Investors and lawmakers criticized Novartis AG (NYSE:NVS) (VTX:NOVN) for not revealing the planned payment earlier. They also argued that this payment was one of the several poor decisions by Novartis on executive compensation.
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Novartis vice-chairman Prof. Dr. Ulrich Lehner said that the company cancelled the compensation deal to issue shareholder concerns. Dr. Lehner will act as interim chairman until the company appoints a permanent replacement by August 1, 2013. The company said it felt the non-compete agreement was necessary to prevent Vasella from taking his expertise and knowledge he gained at the company to a competitor. Vasella has been with Novartis for more than 25 years. He announced his resignation last month.
Even before the revelation of non-compete agreement, Vasella’s hefty annual pay had been the cause of many shareholder complaints. According to the company’s 2012 annual report, Vasella receives $13.4 million or 12.4 Swiss francs a year. Novartis board has also promised shareholders to make changes in the way it pays senior executives by next year.
Ethos, an institutional investor with a stake in Novartis AG was among the stakeholders against the non-compete agreement payments. Vasella himself told the board that he would give up all payments due to public opposition. Now he is free to work with any competitor of Novartis AG (NYSE:NVS) (VTX:NOVN).