Novartis Had Spectacularly Bad Timing With This $78 Million 'Golden Handcuff' Payment

Daniel Vasella, World Economic Forum, Davos

Photo: World Economic Forum via flickr

Daniel Vasella is one of the most important people in the history of Swiss drug giant Novartis. He led the merger between that created the company in 1996, was CEO until 2010, and has been chairman since 1999. He has an incredible amount of information about the company’s inner workings and research.The price tag to keep him from joining another company and revealing those secrets? On Friday, the company announced a “golden handcuff” or non-compete agreement worth an incredible $72 million Swiss Francs, which is about $78 million dollars. 

There was a massive uproar from shareholders, lawmakers, and media due both to the incredible size of the payment, and the fact that the company waited so long to tell investors about it. The company canceled the agreement this morning after just a few days of intense pressure. 

The timing of the announcement was particularly awkward. The topic of excessive executive pay was already in the forefront of people’s minds because of a March 3rd referendum in Switzerland on a law that would give shareholders more power to restrict pay. Vasella was already involved in that discussion because he was being paid $13.4 million a year. 

It was something of a perfect PR storm for the company. Already under fire for executive pay practices, the announcement came out of nowhere, and the package’s size instantly made it a news item. They picked the exact time when supporters of the Swiss referendum would have the most incentive to turn this into an issue. 

Non-compete agreements aren’t uncommon, especially in industries with sensitive intellectual property, but this goes to show how important timing and public perception can be. 

That’s why many companies use accounting tricks or lucrative consulting contracts to reduce that giant headline number and avoid this kind of massive PR headache. 

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