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Originally published Monday, February 18, 2013 at 7:50 PM

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Drugmaker to pay $78M for chairman’s silence

Swiss drugmaker Novartis is drawing criticism for a plan to pay its departing chairman $78 million not to share his inside knowledge with competitors.

The New York Times

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This is disingenuous and insane. No wonder medical expenses are skyrocketing... MORE

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LONDON — A plan by Novartis, one of Switzerland’s biggest drugmakers, to pay its departing chairman $78 million to keep him from sharing his knowledge with competitors has added fuel to an already-heated debate about executive pay.

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.

Vasella, who had previously said that he would step down as chairman at Novartis’ annual shareholder meeting on Feb. 22, is to receive the sum, 72 million Swiss francs, over six years.

In a statement on Friday evening, 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 Vasella and take back any money already paid.

Christophe Darbellay, president of the Christian Democratic People’s Party, told a Swiss newspaper, SonntagsZeitung, that Vasella’s compensation was “beyond evil.”

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 Nestle and the drugmaker 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.

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