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Vasella’s $78 Million Novartis Payout Boosts ‘Fat-Cat’ Crackdown

February 18, 2013

Novartis AG Chairman Daniel Vasella

Novartis AG Chaiman Daniel Vasella, who is standing down from his position, said he plans to give the entire after-tax payout to charity. Photographer: Simon Dawson/Bloomberg

Novartis AG’s 72 million Swiss-franc ($78 million) payout to prevent outgoing chairman Daniel Vasella from working for a rival undermines the cause of campaigners fighting to avoid tougher curbs on executive pay in Switzerland.

“This news is a setback for the campaign,” said Meinrad Vetter, an official at Economiesuisse, which is lobbying Swiss voters to reject a proposal to have shareholders set compensation for top executives. “There will be talk of anger and excessive salaries, rather than about what the initiative really means for Switzerland as a business location.”

The package will be paid over six years if the chairman of Basel, Switzerland-based Novartis refrains from making his “knowledge and know-how available to competitors,” Vasella, 59, said in an e-mailed statement. Vasella, who is standing down as chairman at Novartis’s annual general meeting this week, said he plans to give the entire after-tax payout to charity.

Vasella’s payoff, first reported by Swiss blog Inside Paradeplatz on Feb. 15, comes two weeks before a March 3 referendum on executive pay. While polls shows a majority may vote to give shareholders an annual ballot on executives’ pay and block big payouts for new hires and for managers when they leave companies, Economiesuisse warns it will drive out companies from Switzerland.

Fifty-seven percent of people plan to vote yes in the referendum, compared with 37 percent who intend to vote against it, with 6 percent undecided, according to a poll in Le Matin newspaper today.

Minder Initiative

The vote is the brainchild of Thomas Minder, a Swiss lawmaker and managing director of herbal toothpaste business Trybol AG, whose petition blames highly-paid “fat cats” -- “Abzocker” in German -- for the financial crisis.

Vasella would be paid “fair market compensation” for the so-called non-compete agreement, Novartis said last month, without disclosing the sum.

“His potential employment by another health-care company could cause substantial harm to Novartis,” Eric Althoff, a spokesman for the company, said in an e-mailed statement today.

The payout has angered some Swiss lawmakers.

“This help-yourself culture undermines confidence in the whole economy,” Simonetta Sommaruga, Switzerland’s federal justice and police minister, said in an interview yesterday with newspaper Sonntagsblick. “It does huge damage to the social cohesion in our country and I am personally extremely worried about it.”

Not Happy

Hans-Jacob Heitz, a Swiss lawyer who acts for shareholders, may bring a criminal complaint against Vasella, according to Swiss television.

“The whole thing was organized in secret,” Heitz said. “It’s a violation of the shareholder law and i think it’s also a violation of criminal law.”

Some Novartis shareholders, who will vote Feb. 22 on a new executive remuneration system for next year, are also concerned by Vasella’s package.

“We’re not overly happy with the 72 million,” Birgit Kulhoff, a fund manager with Rahn & Bodmer Co. in Zurich who holds Novartis shares, said in an interview today. “Paying fair compensation for services is OK. However, this is a compensation for which Daniel Vasella has to do nothing.”

Vasella received 13.1 million francs in compensation last year, more than double the rest of Novartis’s board combined, according to the company’s annual report. Franz Humer, the chairman of cross-town rival Roche Holding AG, received 8.67 million francs in compensation last year, according to the company’s annual report.

Creating Novartis

Vasella oversaw the 1996 merger of Sandoz AG and Ciba-Geigy AG that created Novartis, a transaction that ranked as the world’s largest merger at the time. He served as chairman and chief executive officer until 2010, when he ceded the CEO job to Joe Jimenez.

“He was instrumental in creating the company as it is today, and yes, he did create value, although maybe the last couple of years maybe not enough compared to competitors,” Kulhoff said.

Jimenez, Switzerland’s highest earning CEO, got 13.2 million francs in 2012.

To contact the reporters on this story: Simeon Bennett in Geneva at sbennett9@bloomberg.net; Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editors responsible for this story: Phil Serafino at pserafino@bloomberg.net Simon Thiel at sthiel1@bloomberg.net


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