GSK fails to head off mass revolt over £23m Garnier pay-off deal

More than half of GlaxoSmithKline's UK shareholders look likely to vote against the drug maker's controversial remuneration policy, which could net its chief executive, Jean-Pierre Garnier, up to £23m if he is forced out.

It appeared last night that promises of reform given last week by GSK's chairman, Sir Christopher Hogg, has failed to head off what could be the most significant shareholder rebellion of the annual general meeting season.

A straw poll carried out among eight of the top ten UK shareholders by The Independent yesterday suggests that Sir Christopher might have to rely on the company's overseas investors to push the policy through. Five UK institutions said they would vote against the remuneration report.

Only one of the other three shareholders said they could possibly vote in favour.

The mood among UK institutions appears to have hardened in the past few days and GSK is braced for a stormy annual general meeting in central London on Monday.

Executives at the company do not expect the remuneration policy to pass by the sort of landslide that normally accompanies AGM ballots, and are believed to be arguing that even a wafer-thin "yes" vote should be hailed as a significant victory.

The biggest UK-based rebellions so far – at Barclays, Amvescap and Reed Elsevier – have involved "no" votes of about a third, while at BAE Systems the votes of US shareholders against an employee share-save scheme took rebels to 49 per cent.

Fund managers, for their part, hope that a bloody nose for GSK will mark a turning point in corporate governance of UK companies.

One top 10 GSK shareholder said: "The feeling I get is that people have made up their minds on this. This is a big company that has had problems on remuneration for a long while. It is no good trying to sweet talk us so late in the day. It is also a high-profile company and if we can make GSK change its remuneration policy, that should send shockwaves through the market and other companies may begin to get their act together."

Sir Christopher and JP Garnier have already been bloodied once by shareholders, when a plan to double the chief executive's pay and bonuses package to £11m was mooted in November. The idea had to be scrapped, but shareholders were angered when Sir Christopher insisted in a letter accompanying the annual report that GSK's pay for executives and top management remains too low when compared with global rivals.

Some shareholders said they could still change their minds ahead of Monday's meeting, but others are demanding specific written promises to cut the excesses of the current executive pay deal, and the severance packages in particular, which include two-year's salary, pension top-ups and extra share options.

It seems likely that Sir Christopher will go no further than he did in a formal letter, sent to shareholders via the Association of British Insurers last week. In that, he said there would be significant changes to the make-up of the board this year and that executive contracts could be changed to reflect shareholder concerns.

One shareholder who has already voted "no" to the remuneration policy said: "It is not the level of the pay, it is the pay structure. I don't think anybody has a problem with high pay if it demands high performance, but there are things in here that are quite extraordinary. The award of incentive shares after the termination of a contract, for instance, is something I have never come across before. This raises some serious questions because Mr Garnier could benefit from the success of his replacement as chief executive."