Novartis Chairman Agrees to Cancel $78 Million Payout

Novartis AG scrapped a plan to pay outgoing Chairman Daniel Vasella as much as $78 million to keep him from working for rivals after details of the payout emerged days before a Swiss referendum on executive compensation.

The accord that was “intended to protect the company” barred Vasella from “making his knowledge and know-how available to competitors,” the Basel, Switzerland-based drugmaker said in a statement today.

The agreement drew criticism after Swiss blog Inside Paradeplatz reported the size of the sum on Feb. 15. The news broke two weeks ahead of the March 3 referendum that, if passed, will give shareholders annual votes on executives’ compensation and criminalize payouts for departing managers. Vasella had offered to donate the payment to charity. His about-face hasn’t appeased all investors.

“The pile of rubble is still here,” Rudolf Meyer, who heads the Actares shareholders association, said in a telephone interview. “This has damaged Novartis’s reputation around the world.”

Novartis said last month it would pay Vasella “fair market compensation” for refraining to work for the competition for the coming six years, without disclosing the sum. Shareholder rights groups demanded the agreement be annulled after Inside Paradeplatz reported the details.

Unreasonably High

“I have understood that many people in Switzerland find the amount of the compensation linked to the non-compete agreement unreasonably high,” Vasella said in the statement. The company would have paid him as much as 12 million Swiss francs ($13 million) annually for six years.

The cancellation of the accord means Vasella is free to work in the pharmaceutical industry, said Eric Althoff, a spokesman for Novartis.

Still, Vasella may not have an easy time finding another job, Tim Race, an analyst at Deutsche Bank in London said in a telephone interview. “There is a question if another mega-cap pharma company would take him, especially now seeing how shareholders might react.”

Some investors are now demanding Novartis stick to Vasella’s promise of donating the pay. “Donating the money is not off the table,” Hans-Jacob Heitz, a Swiss lawyer who acts for shareholders, said in a telephone interview. Heitz filed a criminal complaint against Vasella and the company’s compensation committee yesterday for breach of trust and untruthful business information.

Novartis rose 0.6 percent to close at 64.30 francs in Zurich. The stock has gained 29 percent in the past year including reinvested dividends, compared with a 21 percent gain for the Bloomberg Europe Pharmaceuticals Index.

‘Fair Compensation’

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 about

8.7 million francs in compensation, according to the company’s annual report.

Vasella also holds about $220 million in Novartis shares according to information compiled by Bloomberg. He 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.