SmithKline to act on pounds 90m pay packet

SMITHKLINE BEECHAM is expected to promise changes to its executive pay structure this week after widespread criticism from shareholders of the pounds 90m paid to chief executive Jan Leschly.

It is understood that Standard Life, the fund manager, which has a 2.1 per cent stake in the pharmaceuticals company, threatened to vote against SB's report and accounts at Tuesday's annual general meeting unless its concerns were addressed.

Guy Jubb, Standard Life's head of corporate governance, said: "Following useful discussions with the company, we understand that the chairman will signal change at the AGM which could lead to improvements in remuneration policy."

Standard Life is understood to have been concerned about SB's policy of basing executive pay on the performance of the company's share price and the level of its dividend, known as total shareholder return. SB shares have risen by more than 350 per cent since Mr Leschly became chief executive in 1994.

However, some fund managers are concerned that the system has rewarded Mr Leschly's performance when other drug company shares have risen almost as much. Shares in Glaxo and Zeneca, which has recently merged with Swedish group Astra, have also appreciated significantly but their chief executives earn considerably less than Mr Leschly.

In response to SB's concessions, Standard Life has taken into account the need for SB to compete with international pay practices by deciding only to abstain in Tuesday's vote.

SB has come in for widespread criticism for the generosity of Mr Leschly's package. The company's latest annual report revealed that he has earned pounds 90m in his nine years with the group. However, other UK shareholders - which include Mercury Asset Management, Legal & General and Prudential - do not share Standard Life's concern about Mr Leschly's earnings.

One UK fund manager said: "A lot of Mr Leschly's income has come from his SmithKline shares and we do encourage directors to own shares in their companies. SmithKline does have to recruit in an international market place."

A spokeswoman for SB played down the changes that chairman Sir Peter Walters will announce on Tuesday. "Each year our committee reviews the remuneration structure, which not only has to motivate but must also remain globally competitive."

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