‘Golden handcuffs’ deal for Novartis chairman dropped

Swiss drugs company Novartis has ditched a proposal to pay its outgoing chairman Daniel Vasella 72m francs ($77m, £50m, €59m) after widespread criticism.

The payment, dropped by mutual agreement, was to have been spread over six years and would have prevented Vasella from working for any Novartis competitors or passing on confidential Novartis trade information to them during that time.

The ‘golden handcuffs’ deal had been branded as “scandalous” by Roby Tschopp, a director of the shareholder group Actares.

Despite the climbdown, Rudolf Meyer, another Actares director, said: “The pile of rubble is still here. This has damaged Novartis’s reputation around the world.”

A more optimistic observation was made by Peter V Kunz, business law professor at Bern University: “Not everything that’s legal is legitimate or right, and Mr Vasella and Novartis have bowed to the public pressure, which is a positive signal.”

Vasella himself, who had said he would donate the 72m francs to charity net of any taxes, had already had his 2011 remuneration of 13.5m francs cut to 13.1m francs in 2012. However, his earnings had previously attracted controversy – he was attacked in 2006 over his $20m (£13m, €15m, 19m francs) pay package.

Having cancelled the payoff, Novartis has now freed Vasella to work for other pharmaceuticals companies.

The company, though, remains defiant. Vice chairman Ulrich Lehner said Novartis had bowed to public concerns but continued to believe in Vasella’s non-compete agreement.

Even some investors want the deal reinstated, including Vasella’s promise to give the money to charity.

Hans-Jacob Heitz, a Swiss lawyer who acts for shareholders, warned: “Donating the money is not off the table.”

Heitz has filed a criminal complaint against Vasella and Novartis’s compensation committee for breach of trust and untruthful business information.

The about-face showed immediate benefits. Novartis share values increased 0.4% on the announcement.

The Vasella case comes just as Switzerland is to vote this month in a referendum that proposes giving shareholders an annual say on executives’ compensation and criminalising payouts for departing managers. If passed, the new law would be a world first of its kind.

Joe Jiminez, the Novartis chief executive, strongly opposes such measures. He said: “It would be very difficult for me … to hire an outside talent to come into Novartis to be an executive committee member because any offer I make would be contingent on shareholder approval.”

One prediction arising from the Vasella controversy is that pay at other Swiss companies is likely to command greater scrutiny in future.