Ethos urges Novartis' shareholders not to approve the re-election of William Brody and Srikant Datar at the company's annual general meeting on 23 February 2012, given that shareholders cannot vote on the remuneration system this year.
These two directors are members of the remuneration committee that did not make any change in the remuneration structure, despite opposition by 39% of shareholders at the 2011 general meeting.
Given that Novartis does not propose an advisory vote of the remuneration system this year, Ethos urges shareholders to refuse the re-election of William Brody and Srikant Datar, both members of the remuneration committee. The committee is responsible of the remuneration system and failed to amend it despite strong contestation by the shareholders at the 2011 annual general meeting. The system is not in line with the expectations of long term shareholders who have the following concerns:
- The CEO's remuneration in 2011 rose by 21.7% to CHF 15.7 million, despite declining results illustrated by a 7% decrease in consolidated net income, a reduced operating margin, and the announcement of restructurings that will result in approximately 3000 job cuts.
- Variable remuneration is excessive. In 2011, 80% of the total remuneration of the members of executive management (86% for the CEO) was variable. At maximum, the variable remuneration can reach 9.9 times the base salary.
- The absolute amount of remuneration remains particularly high. The CEO's remuneration is one of the highest in Switzerland and exceeds 250 times the lowest salary in the pharmaceutical sector. The non-executive chairman's total remuneration is CHF 13.5 millions, which largely exceeds the remuneration of non-executive chairmen in Novartis' peer group, as well as the remuneration of non-executive chairmen of other large Swiss companies included in the Swiss Market Index.
Novartis introduced several improvements in remuneration transparency. Notably, the remunerations are now calculated at their fair market value and not at their fiscal (discounted) value any more. Novartis also publishes the on target and maximum variable remuneration. However, in light of the structure of the remuneration system and given that shareholders cannot vote on the remuneration system every year, Ethos recommends to vote against the two members of the remuneration committee that are proposed for re-election.