GlaxoSmithKline PLC
15 December 2003
Issued - 15th December 2003, London
GlaxoSmithKline plc
GlaxoSmithKline Announces New Executive Remuneration Arrangements
• Link between pay and performance strengthened - robust EPS and TSR hurdles
• Contracts for Executive Directors reduced from 24 months to 12 months
without compensation
• Remuneration aligned with other global pharmaceutical companies - to
recruit, retain and motivate key executive talent
• New policy closely aligned with UK shareholder best-practice guidelines
The Board of GlaxoSmithKline plc today announces new executive remuneration
arrangements, which will cover both its Executive Directors and the company's
top executive team.
These arrangements follow extensive shareholder consultation involving the
Company's largest shareholders and the ABI and the NAPF. There has been a
comprehensive and independent review of GSK's remuneration policy, including its
competitiveness, by Deloitte & Touche and consideration of the findings of that
review by the Company's Remuneration Committee.
GSK's Chairman, Sir Christopher Hogg, said:
'This has been a rigorous process. In developing our new policy we have listened
carefully to the views of our major shareholders. The new remuneration
arrangements are closely aligned with UK shareholder best-practice guidelines
whilst at the same time allowing GSK to secure, retain and motivate key talent
in the globally competitive marketplace in which we operate. As well as reducing
executive director notice periods without compensation, we have introduced
tougher performance conditions which clearly correlate pay with the delivery of
strong financial performance and superior returns compared with our peer group.
No other pharmaceutical company has adopted such demanding performance
criteria.'
'The new policy is clear and unambiguous and will be operated consistently. We
firmly believe it is in the best interests of the company and its shareholders'.
New Remuneration Arrangements - Linking pay with performance
The new remuneration arrangements announced today:
• Align pay with other global pharmaceutical companies.
• Ensure a strong link between pay and performance with total pay increasing
as performance (i.e. total shareholder return and financial performance)
improves.
• Pay below median if performance is below target, rising to above median as
performance improves.
Structure of total package
The compensation packages for GSK Executive Directors are made up of salary,
annual bonus and long term incentives (LTIs). The LTIs consist of a mix of share
options and performance shares.
The new arrangements:
• Leave basic salary and bonus plan unchanged.
• Place greater emphasis on performance shares as opposed to share options
reflecting best practice in long term incentive arrangements.
• Subject all long term incentive awards to rigorous performance conditions
based on financial performance measures.
The two measures which will govern the long term incentive plans are earnings
per share ('EPS') and total shareholder return ('TSR')
Share Options
The share option plan will retain EPS as its measure following full
consideration of the alternatives. Vesting of options will be dependent on the
achievement of stretching and progressive earnings per share targets measured at
the end of a 3-year period.
There will only be one retest in the new option plan in year four, replacing
rolling re-testing.
Target levels for future option grants will be reviewed annually taking into
account GSK's internal projections and external forecasts.
Performance Share Plan (PSP)
The Performance Share Plan will use TSR as its only performance measure. The
performance comparator group will be changed from the FTSE100 to the 15 largest
global pharmaceutical companies (including GSK) to provide a clearer comparison
of how GSK has performed relative to its principal competitors.
TSR will be measured over a 3 year period and there will be no retesting.
Performance shares will only start vesting if GSK's TSR is ranked at least at
the median of the performance comparator group. Full vesting will only be
achieved if GSK's TSR is ranked first or second in the comparator group. For
median performance 35% will vest. Vesting will then occur on a sliding scale up
to the maximum.
2003 Grant
Details of the 2003 awards to be granted to the executive directors under the
Share Option Plan are as follows:
Number of options over ordinary shares or ADSs potentially vesting
EPS growth Dr J - P Garnier Mr J D Coombe
(ADSs) (Shares)
RPI+ 5% or more 460,000 276,000
RPI+ (4%-4.99%) 345,000 207,000
RPI+ (3%-3.99%) 230,000 138,000
Less than RPI+3% Nil Nil
One ADS represents two ordinary shares.
Details of the 2003 awards to be granted to the executive directors under the
Performance Share Plan are as follows:
Number of ordinary shares or ADSs potentially vesting
TSR position Dr J - P Garnier Mr J D Coombe
(ADSs) (Shares)
1st or 2nd 200,000 120,000
3rd 180,000 108,000
4th 160,000 96,000
5th 140,000 84,000
6th 120,000 72,000
7th 100,000 60,000
8th (median) 70,000 42,000
9th and below Nil Nil
One ADS represents two ordinary shares.
The following example illustrates the effect of these grants:
• If the share price increases from the current level of £12.60 to say
£15.00 and GSK's EPS exceeds current market forecasts (see footnotes 1 and
2), 50% of the options will vest and the value accruing to the CEO under the
share option plan would be approximately £1.1 million ($2.0 million). The
value to the CFO would be approximately £0.3 million.
• Under the Performance Share Plan, for the same share price increase to
£15.00 and if GSK's TSR performance is at least as good as half of its
competitor group, the value accruing to the CEO would be approximately £2.1
million ($3.7 million, 35% vesting). The value to the CFO would be
approximately £0.6million.
• Over the same period the additional value delivered to shareholders would
be approximately £15 billion.
Clearly these illustrations are based on certain assumptions. In actual fact
resultant payments would be lower or higher according to performance against the
targets and future share price movements.
The exercise price of the options under these awards, based on tonight's closing
price, will be announced tomorrow.
Share Ownership Guidelines Strengthened
Over 700 of GSK's executives are subject to share ownership guidelines. These
are already amongst the most stringent in the UK and for the top executive team,
will be strengthened further with the introduction of a requirement to retain
shares for at least 12 months after retirement and also to retain vested
performance shares for an additional two years after vesting.
The requirement that the CEO hold shares to a value of 4 times his base salary,
the CFO 3 times and the top executive team 2 times, remains the same.
Other changes to executive director terms
Notice period will be reduced from 24 months to 12 months. Severance payments
will be calculated on the basis of this reduced contract length. In addition,
there will be no entitlement to a post-notice LTI grant. There will be no
mitigation. There will be a 12 month non-compete clause.
There will be no compensation for changes in contractual terms.
The CEO's entitlement to three years of additional pension contributions and age
enhancement will now be consolidated into an annual contribution rate to his
money purchase pension scheme of 15% of his salary and bonus. This change will
ensure that on retirement at age 60 the CEO's pension will be broadly
unaffected.
In addition to the above changes to executive directors' terms, the Remuneration
Committee has decided as a matter of policy not to make material ex-gratia
payments.
APPENDIX: COMPARATOR GROUP
GSK will measure its relative TSR performance against the following comparator
companies: Abbott Laboratories, Astra Zeneca, Aventis, Bristol Myers Squibb, Eli
Lilly, Johnson & Johnson, Merck, Novartis, Pfizer, Roche Holdings,
Sanofi-Synthelabo, Schering-Plough, Takeda Chemical Industries and Wyeth.
In addition to the group outlined above, GSK has referenced pay to a wider group
sourced from the largest 100 companies globally by market capitalisation. These
include selected pharmaceutical, manufacturing and consumer product companies
(comparable to GSK's over-the-counter business) and for which pay data is
publicly available. In addition to the companies noted above, these companies
are: Amgen, Coca-Cola, Colgate Palmolive, Diageo, General Electric, Gillette,
L'Oreal, Nestle, Pepsico, Procter & Gamble, Unilever, United Technologies,
Vodafone.
S M Bicknell
Company Secretary
15th December 2003
1. Market consensus provides EPS growth forecasts for GSK of 4.9% per annum for
the next 3 years. Source: analysts estimates.
2. Assuming RPI of at least 2% per annum.
Enquiries:
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US Media enquiries: Nancy Pekarek (215) 751 7709
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European Analyst/Investor enquiries: Duncan Learmouth (020) 8047 5540
Anita Kidgell (020) 8047 5542
Philip Thomson (020) 8047 5543
US Analyst/Investor enquiries: Frank Murdolo (215) 751 7002
Tom Curry (215) 751 5419
This information is provided by RNS
The company news service from the London Stock Exchange
