Shareholders Will Probably Hold Off On Increasing Novartis AG's (VTX:NOVN) CEO Compensation For The Time Being

Key Insights

• Novartis' Annual General Meeting to take place on 7th of March
• Total pay for CEO Vas Narasimhan includes US$2.06m salary
• The overall pay is 51% above the industry average
• Over the past three years, Novartis' EPS fell by 16% and over the past three years, the total shareholder return was 46%

The share price of Novartis AG (VTX:NOVN) has increased significantly over the past few years. However, the earnings growth has not kept up with the share price momentum, suggesting that some other factors may be driving the price direction. The upcoming AGM on 7th of March may be an opportunity for shareholders to bring up any concerns they may have for the board’s attention. It would also be an opportunity for them to influence management through exercising their voting power on company resolutions, including CEO and executive remuneration, which could impact on firm performance in the future. In our analysis below, we show why shareholders may consider holding off a raise for the CEO's compensation until company performance improves.

View our latest analysis for Novartis

How Does Total Compensation For Vas Narasimhan Compare With Other Companies In The Industry?

At the time of writing, our data shows that Novartis AG has a market capitalization of CHF193b, and reported total annual CEO compensation of US$16m for the year to December 2024. That's mostly flat as compared to the prior year's compensation. We think total compensation is more important but our data shows that the CEO salary is lower, at US$2.1m.

In comparison with other companies in the Swiss Pharmaceuticals industry with market capitalizations over CHF7.2b, the reported median total CEO compensation was US$10m. This suggests that Vas Narasimhan is paid more than the median for the industry. Furthermore, Vas Narasimhan directly owns CHF42m worth of shares in the company, implying that they are deeply invested in the company's success.

Component	2024	2023	Proportion (2024)
Salary	US$2.1m	US$2.2m	13%
Other	US$14m	US$14m	87%
Total Compensation	US$16m	US$16m	100%

Speaking on an industry level, nearly 59% of total compensation represents salary, while the remainder of 41% is other remuneration. In Novartis' case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If total compensation is slanted towards non-salary benefits, it indicates that CEO pay is linked to company performance.

Novartis AG's Growth

Over the last three years, Novartis AG has shrunk its earnings per share by 16% per year. In the last year, its revenue is up 11%.

Few shareholders would be pleased to read that EPS have declined. There's no doubt that the silver lining is that revenue is up. But it isn't sufficiently fast growth to overlook the fact that EPS has gone backwards over three years. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has Novartis AG Been A Good Investment?

Most shareholders would probably be pleased with Novartis AG for providing a total return of 46% over three years. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.

In Summary...

While the return to shareholders does look promising, it's hard to ignore the lack of earnings growth and this makes us question whether these strong returns will continue. In the upcoming AGM, shareholders will get the opportunity to discuss any concerns with the board, including those related to CEO remuneration and assess if the board's plan will likely improve performance in the future.

Whatever your view on compensation, you might want to check if insiders are buying or selling Novartis shares (free trial).

Switching gears from Novartis, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.