Deputy City Editor
The row over boardroom pay was fuelled yesterday by SmithKline Beecham, the pharmaceuticals company, whose highest-paid director received a 29 per cent pay rise at the same time as the company was planning to make thousands of staff redundant as part of a £500m rationalisation programme.
Jan Leschly, chief executive and a former Wimbledon semi-finalist, was paid £2.44m in salary and bonus in 1994 compared with £1.9m in 1993. He was also granted options over 900,000 shares during the year, 388,000 of which he exercised to make a paper profit of more than £650,000.
The disclosure of Mr Leschly's pay rise appeared in the company's annual report, entitled "Striving to make people's lives better". It follows hot on the heels of news that share option schemes have given paper profits of more than £4m to 25 water company directors.
The fact that the rise came in a year when SmithKline's performance was quite muted will add to demands that executive pay should reflect performance more closely.
During 1994, trading profits improved 15 per cent but two-thirds of that increase was attributed to favourable exchange rates. At comparable rates they rose only 5 per cent.
Similarly, SB's trading margin improved by 1.3 per cent but all of that stemmed from better exchange rates. Underlying margins from continuing operations actually declined by 1 per cent due to the loss of contribution from Tagamet, the ulcer drug that lost its patent protection, and the high cost of supporting new products.
Earnings per share, the best measure of improvement as far as shareholders are concerned, grew by only 2 per cent at comparable exchange rates. During the year SmithKline's shares rose 12 per cent.
The rise in Mr Leschly's salary comes months after he warned investors that drugs companies remained under intense pressure as group purchasers drove hard bargains on behalf of doctors. He said SB would have to undergo a big restructuring to cope.
Last December he told a group of City analysts and fund managers: "New efficiencies are required." Up to 78 factories worldwide face the axe and thousands of jobs are at risk as part of the rationalisation of the group, for which about £500m was put aside in provisions.