Jean-Pierre Garnier, the chief executive of GlaxoSmithKline, could earn twice his salary in bonuses even if the drug maker puts in only an average financial performance, corporate governance groups say.
Pirc, the corporate governance adviser, urged shareholders yesterday to reject the company's remuneration policies for a second year, saying that revised incentive schemes could swell Dr Garnier's annual pay to £18.3m.
Its condemnation came as the influential Association of British Insurers issued more muted advice to its members, who control 20 per cent of the UK stock market. In an "amber top" letter, it said GSK's revised pay policies contain a number of breaches of best practice, but stopped short of recommending that investors vote them down.
GSK has made changes to the contracts, bonus schemes and other incentives enjoyed by senior executives after its remuneration report was humiliatingly voted down at its last annual meeting. The company says it is confident of winning the vote by a wide margin this year when shareholders assemble again on 17 May.
Pirc calculates that the share awards made in 2003 would earn Dr Garnier £1.9m, some 200 per cent of his salary, for average performance against GSK's peers and 295 per cent of salary for being just one place higher in the ranking.
Dr Garnier's total remuneration appears to have risen substantially to compensate for a more modest severance package, Pirc says, with £18.3m available, depending on share price and company performance. Investor concerns are being focused on the absence of a cap on the incentive schemes for executives, which GSK says should be linked to similar plans at other international drug companies. Peter Montagnon, the head of investment affairs at the ABI, said: "While this may help ensure competitive pay packages, it introduces a risk of ratcheting up of rewards. Shareholders would derive additional comfort from a continuing dialogue with the company on the operation of the scheme, both with regard to the size of incentives and the performance hurdles."
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