Big Glaxo investors hail cut in Garnier's contract

Institutional investors yesterday welcomed a new remuneration plan by the drugs giant GlaxoSmithKline which will see its chief executive Jean-Pierre Garnier give up a two-year contract worth up to £23m.

GSK, which suffered a humiliating defeat by shareholders over its remuneration policy at its annual meeting in May, unveiled a new scheme which will see Mr Garnier receive up to £5.7m a year.

Peter Montagnon, head of investment at the Association of British Insurers, which was one of the leading opponents of GSK's pay scheme, said: "Shareholders can be pleased that the company heard our message and came back with a set of proposals that reflect that message."

The National Association of Pension Funds, which also criticised Mr Garnier's old salary and bonus package, said: "We welcome the fact that the contract is going to be reduced to one year. We recommend this because it gives greater accountability for performance and it is already in place in two-thirds of the FTSE 100."

However, both of the influential groups said they would have to study carefully the new criteria for granting Mr Garnier and his other executive directors a mixture of share options and performance shares.

GSK said the system would be much more rigorous, with a full award of options granted only if the company's earnings per share rise 5 per cent on top of the retail price index. At the moment, directors receive 100 per cent of the potential options if the earnings per share go up by 3 per cent plus RPI.

GSK said it had conducted "extensive consultation" with major shareholders as well as the NAPF and ABI. It also shook up its board, announcing that Sir Robert Wilson, chairman of mining giant Rio Tinto, will become chairman of its remuneration committee.

John McArthur, who stepped in to head the committee after Paul Allaire, former chief executive of Xerox, stepped down from the post in June, will retire.

The new remuneration arrangements, which will be voted on at next year's annual general meeting, will not give Mr Garnier any compensation for giving up his two-year contract.