At today's Annual General Meeting of Novartis, 39% of the shareholders did not approve the remuneration system: 61% voted for, 38.3% opposed and 0.7% abstained. Ethos as well as several investors and consultants recommended to oppose the remuneration system of Novartis.
Today's vote is a signal to the board of directors that the remuneration system is not in line with the interests of long-term investors and that several amendments should be made. Currently, both the total remuneration and the variable remuneration component are too high.
Dominique Biedermann, Ethos' executive director said: “The strong opposition to Novartis' remuneration system shows that many shareholders do not agree with the amounts and the structure of remuneration. We urge the board of directors to review the remuneration system and to submit it again to the vote at the 2012 annual general meeting of shareholders.”
According to Ethos, the following features of the remuneration system should be reviewed:
- The variable component of the remuneration of executive management should be smaller when compared to base salary. For example, in 2010, the variable remuneration of the CEO was 87% of total remuneration. A very high variable remuneration can lead to risk taking decisions that are not in the long-term interests of the shareholders.
- More than 80% of variable remuneration rewards performance measured over a single year. Best practice requires that such a significant component of remuneration be dependent on the achievement of performance targets tested over several years.
- All the remuneration components should be valued and disclosed at their fair value at date of grant in order to allow comparisons with other companies.
The rules applicable for setting the amount of the chairman of the board's fees should be disclosed. Moreover, the payments that the chairman will receive in respect of the non competition clause after his retirement should be cancelled.