GlaxoSmithKline Shareholders Revolt Against
Vast Rewards for Executive Failure

JILL TREANOR / The Guardian Weekly v.168, n.22, 22may03

Rebels humiliate Glaxo over pay deal

Shareholder activists scored an extraordinary victory against spiralling executive pay this week, voting down a plan by GlaxoSmithKline, Britain's biggest drug manufacturer, to give its chief executive, Jean-Pierre Garner, £22m ($35m) if he were to lose his job.

Jean-Pierre Garnier, GlaxoSmithKline's
chief executive, after facing the
wrath of shareholders
Photo: Martin Argles

Almost 51% of shareholders who voted rejected GSK's remuneration report at Monday's acrimonious annual general meeting at London's Queen Elizabeth conference centre.

Shareholders, large and small, united to deal a humiliating blow to Britain's third-largest company. Institutional shareholders said the Glaxo rebellion was the most significant defeat of a big company's board at its annual meeting in memory.

City of London investors said the vote should be taken as a warning by other big companies that excessive boardroom pay deals would not be tolerated.

Although the vote is only advisory, GSK's chairman, Sir Christopher Hogg, insisted that the company was listening to shareholders' concerns.

The rebellion is the latest in a line of protests by shareholders who have been armed by the UK government, which recently made it compulsory for companies to put their pay policies to a vote each year. Companies such as Barclays, Shell, the fund management group Amvescap and the Hilton hotels group have all felt the backlash from investors.

Although GSK said that only 50.72% of shareholders had voted against the pay deal, another swath of shareholders abstained, taking the rebellion to 61%.

The stage had been set for a rebellion at GSK after the Association of British Insurers (ABI), which represents the big insurance companies and which controls about 25% of the stock market, marked the company's remuneration policy as a so-called red top - a rarely used indicator intended to show serious concern to its members. The National Association of Pension Funds had advised its members to abstain.

Peter Montagnon, head of investment affairs at the ABI, said: "The message must go out to other companies that they do need to be very clear with what they are doing on their remuneration policy. They have to have a policy that they can defend in public."

The row was not so much about the £5m Mr Garner earned last year but more about the £22m he stands to receive if he loses his job.

The French-born chief executive told the meeting he hoped never to receive the pay-off. He repeatedly defended his decision to live in Philadelphia rather than the UK, where GSK is based.

Sir Christopher insisted the company took the dissension "very seriously." He has hired consultants Deloitte & Touche to review the pay policy and promised to find a way to end the controversial two-year pay-off provision at the root of the protest.

Mr Garner, who took over the helm of GSK when Glaxo and SmithKline merged three years ago, is famous for his comment in 1999 that "if you pay peanuts you get monkeys - and we cannot have monkeys running this company".

The 55-year-old scientist turned businessman has always appeared to have been obsessed by the difference between the salary and bonus packages offered in the UK and US.