The Novartis annual general meeting (AGM), which usually marks the start of the proxy season in Switzerland, has raised fears of a return to a level of remuneration levels (close to 20 million Swiss francs) that has been not seen in Switzerland for many years. The Ethos Foundation is sounding the alarm and recommending that shareholders oppose all items related to remuneration on the agenda.
The Ethos Foundation is releasing today its voting recommendations for the Novartis AGM to be held on 7 March in Basel. Ethos recommends that shareholders oppose all votes related to remuneration, and in particular the maximum envelope of CHF 95 million planned for the remuneration of the 11 members of the executive management in 2026, as well as the 2024 remuneration report, in which shareholders can see the increase in remuneration.
Ethos is concerned to see the remuneration of company’s executives rise sharply again in recent years. The CEO's effective remuneration for 2024, i.e. taking into account the basic salary and the 2024 bonus as well as the value of the shares allocated to him under a long-term incentive plan for the period 2022-2024, is 19. 2 million Swiss francs, a record level since 2009, and the 42 million Swiss francs received by Daniel Vasella. This extreme level of remuneration is the result of the gradual increase in the CEO's target variable remuneration in recent years and the leverage effect of the variable remuneration plans.
‘When Vasant Narasimhan became CEO in 2018, his remuneration was around 10 million francs,’ emphasises Vincent Kaufmann, CEO of the Ethos Foundation. ’At the time, the company had assured that the excesses were a thing of the past and that even if the new CEO's variable remuneration could theoretically reach nine times his basic salary, the criteria for achieving such levels were so demanding that it would never happen. Today, it is clear that his remuneration has continued to increase year after year and that we are once again at a level that is very excessive and worrisome for all of the company's stakeholders.’
Although Novartis' financial performance in 2024 was relatively good, Ethos considers such levels of remuneration to be grossly excessive and well beyond what can be approved. The CEO's variable remuneration for 2024 alone amounts to CHF 16.9 million, which is 9.1 times his base salary of CHF 1.86 million. Worse still, the board of directors has decided to review the remuneration system so that the CEO could in future receive variable remuneration of up to 11 times his base salary.
Sustainability report: Novartis persists with advisory vote
As in 2024, the agenda of Novartis, which usually launches the AGM season in Switzerland, contained a very unpleasant surprise for shareholders. For the second consecutive year, the pharmaceutical company persists in considering the vote on the sustainability report to be advisory rather than binding.
However, the Federal Council itself confirmed the binding nature of this vote in an explanatory report published last summer when the draft revision of the Code of Obligations was submitted for consultation. ‘The decision of the general meeting is binding (not an advisory vote),’ the report states.
The Ethos Foundation had already objected to this misinterpretation of the law last year, when the sustainability reports of the largest listed companies in Switzerland were put to a shareholder vote for the first time. A consultative vote does not have the same weight or the same significance as a binding vote. In this respect, it is worth noting that most SPI companies (59%) opted for a binding vote on their sustainability report last year.
Nevertheless, Ethos recommends the approval of the Novartis sustainability report. First, the company communicates a large number of key indicators over three years with at least one objective for each important issue. Secondly, Novartis had its climate objectives (re-)validated as being scientifically aligned with a 1.5°C scenario last year. Finally, Ethos is delighted that Novartis is once again at the top of the ‘Access to Medicine index’, which ranks the world's 20 largest pharmaceutical companies according to their efforts to improve access to medicines, vaccines and diagnostics in low- and middle-income countries.
As usual, Ethos will publish all its voting recommendations for listed companies on its website five days before their AGM.
