Novartis links bonuses to ethics in bid to rebuild reputation

ZURICH (Reuters) - Swiss drugmaker Novartis NOVN.S has revealed its employees only get a bonus if they meet or exceed expectations for ethical behavior as it seeks to address past shortcomings that have damaged its reputation.

FILE PHOTO: Swiss drugmaker Novartis' logo is seen at the company's plant in the northern Swiss town of Stein, Switzerland October 23, 2017. REUTERS/Arnd Wiegmann/File Photo

Chief Executive Vas Narasimhan has made strengthening the Swiss drugmaker’s ethics culture a priority after costly bribery scandals or legal settlements in South Korea, China and the United States.

Employees now receive a 1, 2 or a 3 score on their values and behavior. Receiving a 2, which Novartis said denotes meeting expectations, or a 3, for “role model” behavior, would make them eligible for a bonus of up to 35 percent of their total compensation.

Novartis said it began the scoring system in 2016 but details have not been widely reported. Company officials outlined the system on Monday on a call about its ethics efforts with analysts and journalists.

“Unless the sales representative scores a two or a three, they will not be eligible for their variable compensation,” Samir Shah, Novartis’s head of investor relations, said of the company’s values and behaviors scoring system.

“That’s how we’ve tried to make sure we’ve got the right balance between pay for performance and having the right behavior,” he added.

Shah, who said the standard applies in all countries where Novartis does business, did not immediately know how many employees will be ineligible for bonuses at their next appraisals in October or November.

Novartis said additional action may be taken where an employee falls short on their ethics score, or they could be dismissed.

The company was also this year embroiled in a political controversy over payments it made to U.S. President Donald Trump’s ex-attorney.

Narasimhan has said he did not learn of the $1.2 million payments to Michael Cohen, until well after his predecessor, Joe Jimenez, struck the deal in 2017. Narasimhan has labeled the Cohen contract a mistake but said the company did nothing illegal.

Basel-based Novartis recently hired a new ethics chief, Klaus Moosmayer, 49, from Siemens, where he spent more than a decade helping oversee the German engineering company’s efforts to build its compliance system.

Two years ago, Novartis was forced to pay $25 million to settle U.S. civil charges it had bribed Chinese healthcare professionals to boost sales in China. To remedy weaknesses in that country, the company now has a pilot project in China in which expense reports are scrutinized before money is reimbursed.

“This allows us to look at the behavior metric before any money leaves Novartis, and catch potential misconduct before there is any risk to our reputation,” said Novartis general counsel Shannon Klinger, promoted to the post this year after Felix Ehrat resigned to take responsibility for the Cohen contract.

“You can expect us to continue focusing on resolving the legacy issues that we read about in the press, ensuring we address any remaining underlying behaviors,” she added.

Reporting by John Miller; Editing by Kirsten Donovan