Novartis revamps bonus pay as ethics rise to top priority at scandal-hit drugmaker

a compass pointing to "ethics"
Novartis' sales representatives around the world won't be eligible for a bonus of up to 35% of their total pay if they fail an ethics evaluation. (Olivier Le Moal/Shutterstock)

Lately, a lot of public attention has been drawn to ethics at scandal-haunted Novartis, and management has decided it’s high time to unveil some new measures aimed at upholding internal standards and repairing its reputation.

Novartis’ entire sales force is now subject to a lowered bonus cap that’s 35% of their total compensation, while the weight of fixed pay has been increased, newly minted general counsel, Shannon Klinger, told investors on a conference call Monday. All Novartis markets have been held to the same ratio since January 2016, a company spokesman told FiercePharma

What’s more, unless a sales representative scores at least a 2 on a scale of 3 for their “values and behaviors,” they will not be eligible for that variable component of their pay, said investor relations chief Samir Shah on the call. “That’s how we’ve tried to make sure we’ve got the right balance between pay-for-performance yet having the right behavior,” he said.

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Shah said he didn’t know how Novartis’ 35% bar fares against its peers because many companies consider it competitive information—showing just how eager Novartis is in addressing ethics shortfalls.

It came after the company was embroiled in myriad doctor and politician kickback scandals around the globe, including in Greece, South Korea, China and the U.S. These embarrassing moments hit a new low when it was learned the company made $1.2 million in payments to President Donald Trump’s former personal attorney Michael Cohen.

RELATED: Reeling from Cohen scandal, Novartis recruits Siemens veteran as new ethics chief

CEO Vas Narasimhan has admitted the one-year Cohen contract was a mistake but denied any personal involvement. Then-general counsel Felix Ehrat, who said he cosigned the deal with ex-CEO Joe Jimenez, stepped down and handed the top legal role to Klinger. Klinger’s chief ethics, risk and compliance officer title—added to the executive committee rank in March—will soon be held by Klaus Moosmayer, chief compliance officer at Siemens.

“I never want Novartis to achieve our financial performance or objectives because we compromised on our ethical standards or our values—we must always choose our values,” Narasimhan recently told investors, a statement Klinger reiterated on the Monday briefing, calling it a “touchstone of the management and the board.”

Now that Narasimhan has set “trust & reputation” and “culture transformation” as two of the five priorities and added more weight to the chief ethics job, the Swiss pharma is also pushing for compliance on various fronts to restore its image.

RELATED: Novartis ex-CEO Jimenez speaks out as top lawyer takes the fall for $1.2M Cohen deal

After paying $25 million to settle a U.S. Securities and Exchange Commission case that claimed it paid bribes in China to doctors from 2009 to 2013, Novartis is piloting a program there that looks at employee expense reports before reimbursement.

“This allows us to look at the behavior metrics before any money leaves Novartis and catch potential misconduct before there’s any risk to our reputation or otherwise,” said Klinger.

Other measures included rolling out data analytics for compliance monitoring, using data to be more predictive about risks, continuing ethical competence reviews in hiring and promotion, and fostering transparency over financial interactions with hospitals and physicians in countries where disclosures are not mandatory.

GlaxoSmithKline tried something similar with its U.S. sales force some years back, unlinking pay to quotas, but then later altered the plan when its sales began to suffer in the world's largest market. 

Editor's Note: The story has been updated to reflect that the 35% ratio has been applied to all Novartis markets since 2016.