NAPF seeks justification for Glaxo's plans to increase Garnier's pay

The National Association of Pension Funds, whose members control 20 per cent of the UK stock market, has joined the chorus of criticism of a bumper pay package GlaxoSmithKline plans to pay its chief executive.

The drug group looks likely to be forced into concessions on the proposal to increase the "quantum reward" for Jean-Pierre Garnier as other institutional shareholders also expressed their disquiet.

The NAPF has warned the drugs giant that if it fails to justify the deal, it will advise members to vote against it. The organisation, whose members collectively have a substantial holding in Glaxo, made its reservations known after it received a letter from the company last week. The letter outlined the need to increase Mr Garnier's pay, bonus shares and options package, which totalled £3.5m last year.

Chris Baldry, the manager of the NAPF's voting issue service, which guides pension fund members about corporate governance, said the letter from Glaxo was "extremely vague".

"We have told them that we will be looking very closely at the justification for this when they release more details to shareholders. The company should also be careful about what it proposes in the light of what has happened to shareholder value," Mr Baldry added.

The proposal has attracted such a storm because it comes at a time when Glaxo shares are languishing at seven-year lows. The company's sales growth is falling behind many of its peers because of copycat competition to some of its leading drugs and because of a poor pipeline of new products. The company is also yet to prove the mega-merger which created it will yield the improved results from its research departments that are needed to maintain its long-term prospects.

Mr Garnier became the company's chief executive when it was created by the merger of Glaxo Wellcome and SmithKline Beecham in December 2000. The drugs giant is thought to want to double the annual grant of share options and more than double the maximum size of his performance-related bonus share package. The deal could double his total remuneration and propel him towards the very top of the list of the UK's most well-paid directors.

City observers said it was unlikely to be successful. One fund manager said: "The jungle drums are now rolling. It is very unlikely they will get this through."

One of Glaxo's largest institutional shareholders poured cold water on the pay proposal, saying it was "bizarre" and "not going to fly".

The company has begun a series of meetings with major shareholders and said it has met about half a dozen so far this week. Glaxo argues it wants to boost Mr Garnier's pay in order to put him on to a similar footing with chief executives in America, where he is based.