SKB faces shareholder revolt over bosses' pay

SMITHKLINE BEECHAM, the pharmaceutical giant, is facing a revolt from shareholders who believe that the bonuses of its top executives are too generous and easy to achieve.

The investors are angry at SKB's share award scheme, which contributed to the controversial pounds 93m nine-year pay package of chief executive Jan Leschly, and are seeking an urgent meeting with the company to discuss their concerns.

One of the investors, the Scottish fund manager Standard Life Investments, is understood to be considering voting against the company's accounts at the shareholders' meeting later this month unless it makes radical changes to the scheme.

Standard Life, which is backed by at least one other investor, is understood to be unhappy at the way SKB awards free shares to employees in its mid- term incentive plan.

The scheme is based on Total Shareholders Return (TSR), a measurement of company performance that takes into account the rise in the share price and dividend payments. Under SKB's plans, 350 top executives receive a full bonus if the company's TSR is among the top 20 in the blue-chip FTSE 100 over three years. The level of shares awarded falls as the company slides down the TSR chart and no bonus is paid if SKB is among the bottom 40 performers.

According to Standard Life, which owns around 2.1 per cent SKB, the criteria are too lenient as they are not directly linked to the group's financial performance and shares prices are determined by factors outside the executives' control. Moreover, the scheme enables SKB's managers to receive bonuses even if the company ends up at number 60 out of 100 in the TSR table.

The fund manager wants the company to make the rewards more challenging by linking them to financial indicators such as earnings or cash-flow growth. It is also urging SKB to measure its financial performance against its pharmaceutical rivals instead of the whole FTSE 100 index.

Guy Jobb, director of corporate governance at Standard Life, yesterday said: "We have consistently maintained that SKB should introduce challenging and stretching criteria. So far the company has not addressed our concerns."

The Scottish fund manager could voice its worries at SKB's annual meeting on 27 April by refusing to approve the company's annual report and accounts. However, Standard Life's tough line is unlikely to be followed by SKB's other major shareholders, which include Mercury Asset Management and Prudential.

A SKB spokeswoman said: "Any shareholder is free to bring up any topic at the AGM. We believe we have the track record to show that what we are doing is right."

Meanwhile, Sir Dick Evans, chairman of British Aerospace, saw his pay packet rise to pounds 1.25m last year, boosted by an award of shares under the company's long-term incentive plan. Sir Dick earned a salary including pension contributions of pounds 747,000 and a bonus award of shares worth pounds 503,000. Like SKB, the incentive scheme uses total shareholder return as the main basis for calculating awards.