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There must be some long faces at Daniel Vasella's favoured charities. The retiring chairman of Novartis had promised to give away all of the net proceeds from 72 million Swiss francs ($78-million) of non-compete payments over the next six years. But there will be far more smiles after Tuesday's announcement that the deal was off. The Swiss drugmaker's board capitulated to furious Swiss citizens, indignant shareholders and irritated analysts.
The Vasella case is undoubtedly extreme. He was to be paid an unusually large sum for behaving as he would have anyway. He would be mad to compete with a company in which he holds shares and options worth more than $300-million. And Switzerland is probably the global leader in the rebellion against executive remuneration. Opinion polls suggest that on March 3 voters will approve a law which will ban some kinds of pay at quoted companies and require shareholder approval for awards to big bosses.
However, Vasella's pay-for-silence package was only a particularly egregious example of extravagant remuneration for corporate leaders, which is nearly universal and increasingly looks politically unacceptable. The long recession and the insouciance displayed by the bosses of nearly failed banks seem to have made this a vote-winning issue. Indeed, their expectations of huge incomes angers everyone other than current or would-be bank chiefs.
The Novartis retreat is not going to be the last, although it may be among the most public. Activists will be emboldened, and boards and bosses will be frightened by the prospect of dreadful publicity. It is almost impossible to justify any pay number over $10-million a year, or even $1-million a year, when average salaries are $40,000-$50,000 according to OECD calculations. But it's easy to sound out of touch and greedy while trying.
One reason that bosses' pay levels rose so fast was the perceived need to keep up with the competition. As the pressure for employee solidarity reaches the boardrooms and executive suites, the next race may be in the other direction, towards the least controversial – that is the least generous – level.