SWIZERLAND - Ethos, the Swiss Foundation for Sustainable Development, has called for a review of the remuneration policy of Swiss-based pharmaceutical company Novartis.
At Novartis' annual general meeting on Tuesday, 39% of the shareholders did not approve of its remuneration system, with Ethos arguing the vote was a signal to the board of directors that the remuneration system is not aligned with the interests of long-term investors and that several amendments should be made.
In total, 38.3% of the shareholders opposed, while 0.7% abstained and 61% voted in favour. Ethos believes that 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."
She added: "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 several features of the remuneration system should be reviewed.
The lobbying group argued the variable component of executives' remuneration packages should be smaller as a percentage of base salary than at present. It cited the example of 87% of Novartis' chief executives' total remuneration being variable last year, arguing that this cultivates excessive risk-taking that does not agree with the overall interests of long-term investors and shareholders.
Additionally, Ethos said that over four-fifths of variable remuneration went to rewarding performance measured over a single year, when best practice required that such a significant component of remuneration be dependent on the achievement of performance targets tested over several years.
It further argued that remuneration components should be valued and disclosed at their fair value at date of grant in order to allow comparisons with other companies.
Ethos was created in February 1997 by two Geneva-based pension funds and currently comprises more than one hundred institutional investors. Its purpose is to promote socially responsible investment as well as a stable and prosperous socio-economic environment.