At the March 6 annual meeting of Swiss pharmaceutical giant Novartis, chairman and CEO Daniel Vasella and Hans-Joerg Rudloff, chair of the compensation committee, are up for reelection.

Last week, the Ethos Foundation said it would vote against Rudloff, asserting that he presided over the approval of excessive "golden parachute" severance packages for five top executives, including Vasella. Ethos, which was created by Swiss pension funds, has been at the forefront of shareholder engagement in Switzerland.

Ethos estimates that Vasella received CHF 44 million ($36 million) in total compensation in fiscal 2006. Severance for Vasella and four other senior executives is three times annual pay, and five times annual pay in case of a change in control. However, the company has not disclosed what would constitute "annual pay" for purposes of applying the multiple. Yola Biedermann, head of corporate governance at Ethos, told Governance Weekly that "it is clearly not just base compensation. In a worse case scenario, the golden parachute would amount to five times CHF 44 million, i.e., CHF 220 million."

To help investors raise these concerns at other firms, Ethos has called for an annual investor vote on executive pay in Switzerland. Ethos made this request in November as part of a study on the compensation of executive and non-executive directors at the 100 largest Swiss companies. Investor votes on compensation are a common practice in the United Kingdom, Australia, Sweden, and the Netherlands. In the United States, shareholders have filed more than 50 proposals this proxy season that request an advisory vote on pay practices.

Ethos also plans to abstain from reelecting Vasella, because the foundation contends there is no justification for continuing to concentrate the roles of chairman and CEO in one person. In 2005, Ethos filed a resolution at Nestlé to separate the chairman and CEO roles, which received 36 percent support from shareholders.

At Novartis, Vasella became CEO in 1996 and has held the chairman position since 1999. At the time, the company justified the combination of the chairman and CEO roles as a temporary measure, following Novartis' creation by the 1996 merger of Sandoz and Ciba-Geigy.

While the combination of the chairman and CEO positions is losing favor in Europe, the practice is still common in the United States. In Switzerland, according to Ethos data, only 17 of the largest 100 companies combine the positions, and three of those have announced a planned separation. The Swiss Code of Best Practice for Corporate Governance allows a combination but calls for "adequate control mechanisms."

Novartis has structures in place to offset the combined roles, as many U.S. issuers do. Based on ISS classification criteria, Novartis' board is 75 percent independent. In addition, no executives serve on the audit and compensation committees, and all three key committees have independent chairs, as well as a majority of independent members.

When asked why he won't give up one of his dual roles, Vasella turned the question back to shareholders. "Since there is no conclusive evidence of any downside to a combination, critical investors should demonstrate that there would be a clear upside to a separation," Vasella told Governance Weekly.