Recently, the Swiss drug maker Novartis announced a $70,000,000 severance package, which included a non-compete, for its departing CEO Daniel Vasella. In exchange for the package Vasella was going to sit on the sidelines and not share any of his knowledge about the industry with competitors.
Novartis shareholders and politicians expressed outrage over the terms of the deal and Novartis scrapped it. Outrage over executive compensation was at an all-time high during the great recession,but public and shareholders are certainly still very sensitive to these types of issues. This type of an agreement is an outlier in terms of its scope and money involved but there are certain situations where they make sense. This is especially true in the case of the purchase of a business.
A Texas company still needs to ensure that the agreement satisfies the Texas Non-Compete Statute. It is questionable whether the Novartis deal would have been enforceable in Texas. In many instances the employer will simply keep the x-executive employed and pay her out over time – this can be easier to enforce and administer. No word on what Vasella stands to receive now. Interestingly enough, Swiss voters adopted a measure that will require shareholders to approve executive pay. Can’t imagine seeing that in the US.