Outlook: Row at GSK highlights a growing cultural divide over pay

Broadband Britain

A sense of déjà vu surrounds the growing row over Jean-Pierre Garnier's pay at GlaxoSmithKline. When Jan Leschly was chief executive of SmithKline Beecham, he became so incensed about the controversy over his American style remuneration package that he tried to persuade the board to switch the company's domicile from Britain to the US.

His argument was that he lived in the US, he ran the company from the US, his main markets were in the US, and he paid his senior executives in the same way as their peers in the US. The degree of hostility he and his company were encountering in the UK over pay made Britain an increasingly unattractive place to be domiciled and listed.

This is not generally known, but the board came within a whisker of agreeing. The only thing that persuaded them against it was that the listing authorities in the US couldn't guarantee immediate inclusion in the S&P 500, which might have caused a slump in the share price. Without inclusion in the 500, there would have been no enforced buying by US institutions to compensate for the forced selling by indexed funds in the UK. On such technicalities are big decisions often made.

Mr Leschly's successor, Jean-Pierre Garnier, has made no such threat with GlaxoSmithKline, but the underlying issues are the same. Is GKS fundamentally a US company these days, or still a British one? JP lives in the US, he runs the company from the US, his main markets and competitors are in the US, and so on and so forth. And yet his pay is no longer competitive with that of his US peers. GSK has suffered a number of high profile departures in recent months. In all cases pay has been an issue.

GSK proposes to address the problem by adding an additional layer to JP's long term incentive plan. It is in this area that Mr Garnier's pay is judged to have become uncompetitive with US peers. Mr Garnier and other senior executives already benefit from two long term share incentive plans. In the first, he only gets his full entitlement to free shares if GSK is among the top 20 FTSE 100 companies in terms of shareholder return measured over a three year period. But he still gets 40 per cent of the entitlement even if GSK comes as low as number 50 in the hierarchy. Not too taxing, you might think, for a company that's meant to be in a growth industry.

In the second part of the plan, earnings per share growth is required to be 9 per cent above the rate of inflation over the three year period for the free shares to vest. Again not too taxing. To these existing plans, GSK proposes to add a third element. For full vesting of the extra tranche of free shares, GSK is required to be in the top third of a peer group of drug companies in terms of total shareholder return.

Details of the scheme are thin on the ground, but some shareholders calculate that it would enable Mr Garnier to double his annual pay, which last year reached £3.5m. How tough the performance criteria are depends crucially on which companies are included in the peer group. Again, in practice the new performance targets may not be unduly taxing.

Mr Garnier already enjoys a service contract which by requiring the company to give him two years notice, three years pension benefit and 12 months of long term incentive plan benefits, is in breach of UK best practice on corporate governance. How much more does he want for the privilege of running the world's second largest pharmaceuticals company?

It is all very well Mr Garnier saying he needs to be rewarded by US standards, but GSK's owners are still largely British, and in such circumstances, British sensitivities have to be answered. What's more, his timing could hardly be worse. Over the past two years, GSK shares have lost 40 per cent of their value. It matters not that so too has the rest of the pharmaceuticals sector.

The Glaxo Wellcome/SmithKline Beecham merger is widely judged a failure, there seems to be a real problem with product innovation, and staff morale, in the UK at least, is slumping. For the chief executive to be doubling his pay in such circumstances seems wholly inappropriate. To be citing the need for US standards of pay after such a destructive period of excess in corporate America fare takes the breath away. Like all businesses right now, GKS is going through a period of austerity and belt tightening. Self sacrifice is one of the key ingredients of good leadership, but there's very little evidence of it here.

Already a serious standoff has developed, with neither side, JP or his largely British shareholders, apparently willing to give ground. By all accounts, Mr Garnier is not a greedy man, in the same way as Mr Leschly perhaps was. For JP it is much more about the principle of the thing. It is not just his own pay, but that of key personnel that needs addressing for GSK to remain internationally competitive, he would insist. Back me or sack me, the chief executive is often tempted to say in such circumstances. Both sides would be well advised to take a cold shower, cool down and find a compromise.

Broadband Britain

It was in headier more optimistic times, when internet fever was still in its infancy, that Tony Blair set himself the target of making Britain the e-commerce centre of the world by 2002. Has be succeeded? Hardly. Broadband take-up in Britain, though now growing fast, is still the lowest out of all the G7 countries. Compared to South Korea, where broadband penetration is an astonishing 55 per cent of the population, we are so far behind, it hardly seems worth trying to catch up.

Hope springs eternal in politics, and the Prime Minister has now set himself a new target - that broadband access should be available to all by 2005. As it happens, this is actually a much more realistic target, since broadband in some shape or form is already largely available to anyone who wants to pay for it. Encouragingly, he's also putting the public services at the heart of the new drive for broadband Britain.

This may be mere rhetoric, but it always has been the case that the best thing government can do to improve the take-up of the new technologies is to take them up itself. The penny seems finally to have dropped. Making government paperless, putting government on the internet and investing in broadband for the public services, might help things along quite a bit.

There are big competitive advantages for business and government in high speed internet access. Productivity can be enormously improved by using broadband. For everyone else the benefits are less obvious. Poor quality of service has been an issue for many new subscribers. Hopefully, these are just teething problems. It certainly doesn't help that BT remains for many the monopoly supplier. The sooner Lord Currie gets his feet under the table at Ofcom and persuades BT of the sense of a break-up that would separate wholesale infrastructure from sales, the better for everyone.

But even once you've got properly functioning broadband, what do you do with it? Not much, seems to be the answer, other than illegally download music and film at high speed. It is no accident that some of the world's largest companies are among the worst offenders in music piracy. Employers' high speed access is routinely used illegally to download music and much else besides. The problem of illegal downloads is at its most acute in areas of high broadband penetration – South Korea, Canada and parts of the US. By pushing broadband, BT and the government are only encouraging piracy, Alain Levy, EMI's head of recorded music, suggested this week.

Broadband in the home is a nice gimmick to have. It also stops the kids constantly blocking the telephone line with internet chat. But it doesn't yet offer anything legal that cannot be adequately accessed via dial-up narrowband. Broadband Britain won't gain legs until it can offer people something they don't already have.

jeremy.warner@independent.co.uk