Glaxo scraps Garnier's controversial £12m pay deal

GlaxoSmithKline has shelved plans to double its chief executive's pay to £12m after an outcry from shareholders.

The UK's biggest drug maker has postponed a decision on how to improve Jean-Pierre Garnier's remuneration, which it says still needs to be brought into line with more generous schemes for his opposite numbers at US corporations.

GSK was proposing to double his share options and triple the maximum number of shares Mr Garnier can be awarded under long-term incentive schemes.

But yesterday the company finally bowed to pressure and said it would reconsider, after a week of meetings with shareholders.

GSK issued a statement saying: "The company remains committed to the policy of aligning its incentive plans with those of its global pharmaceutical peer group. However, after taking account of shareholder views, the company has decided to postpone a decision on this matter and will now take further time to consider the way forward."

Sir Christopher Hogg, the chairman, decided yesterday that he would need to compromise over the issue, which has sparked an angry response from shareholders.

Several said yesterday that GSK would need to move on two substantive issues, the total size of the options and bonus shares package and the performance targets which trigger the bonus shares.

One shareholder said: "Some people had raised concerns about this a few months ago, even before there were any details, but the company chose not to take any notice of them. Some companies think the very fact of talking to shareholders will make everything okay."

Under the withdrawn package, Mr Garnier would have been granted options over about 1.6 million shares, twice as many as last year, in a move which some shareholders have said amounts to rebasing his share options package. GSK's share price has fallen by a third since Mr Garnier was last granted options.

It was also planned that he will be granted up to 400,000 bonus shares, almost three times the maximum number he can currently earn from an existing performance-related scheme. At the current market price, these shares would be worth £5m.

Instead, his incentive package will be similar to last year's 900,000 options and maximum of 70,000 bonus shares. The company had no comment on whether Mr Garnier's basic salary – £991,000 last year – would be raised to make up for his disappointment.

It is also not clear whether GSK would come up with an additional incentive scheme for its chief executive in time for the annual general meeting in the spring, or wait until this time next year.

The Association of British Insurers, whose members control about 20 per cent of the London stock market, welcomed GSK's volte-face and said it hoped the company would take time to let the temperature cool. Peter Montagnon, the ABI's head of investment affairs, said: "We have to see what happens as a result of the crisis of confidence in the practices of remuneration in the US. Pay mustn't be ratcheted up because everybody wants to be at the top of the pile, and there must be a link between remuneration and shareholder value."