Home Business Novartis AG Chief Vasella Admits Making Mistake Over $78M Payout

Novartis AG Chief Vasella Admits Making Mistake Over $78M Payout

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Novartis AG (NYSE:NVS) (VTX:NOVN) shareholders are still furious after outgoing chairman Daniel Vasella’s $78 million pay package was scrapped. In a non-binding vote on new executive pay system, 78 percent shareholders accepted the new framework, while 20 percent were against it, indicating their anger on the company’s board. Ethos, one of the biggest institutional shareholders in Novartis, rejected the new plan. It said the variable payment component of the chief executive package is excessive.

Daniel Vasella and Novartis board had negotiated a farewell payout of $78 million over six years, that was aimed at preventing Mr. Vasella from sharing his expertise and experience with the rivals of Basel-based drugmaker. That outraged investors, lawmakers and politicians. People criticized Novartis AG (NYSE:NVS) (VTX:NOVN) for agreeing on an eye-popping outgoing package with Vasella.

Finally, under the shareholder pressure, the company scrapped the deal with Mr. Vasella. According to the reports, Mr. Vasella himself recommended the board to cancel the deal to alleviate public outrage just a few days before a national vote on a referendum that proposes to give shareholders more say on executive remuneration.

Even before the details of the $78 million non-compete agreement with Mr. Vasella leaked last week, the outgoing chairman’s hefty pay package has been the cause of many shareholder complaints. Mr. Vasella has been widely criticized as exorbitant and inappropriate. His compensation increased to $13.4 million in 2012 even as the company’s profits plunged 7 percent and thousands of employees were laid off, most of them in Switzerland. The common people and politicians in Switzerland are highly sensitive to such changes in the workplace.

Mr. Vasella admitted today, during his last annual general meeting, that he made a mistake by negotiating the $78 million outgoing payout with the company. But his conceding did little to appease investors. Dominique Biedermann, head of Ethos, sarcastically thanked Mr. Vasella for recognizing his mistake and cancelling the contract.

The new executive payment framework will become effective next year. Joerg Reinhardt, the head of Bayer Healthcare, will take over as the new chairman of Novartis AG (NYSE:NVS) (VTX:NOVN) on August 1, 2013.

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