Summary remuneration report for the year to 31 December 2004

Introduction

The Summary Remuneration Report sets out the annual remuneration of the Board earned in 2004, together with any gains under long-term incentive arrangements. It also describes the background and outlines the Group's remuneration policy, together with the performance graph required by the Directors' Remuneration Report Regulations 2002 (the Regulations).

The Remuneration Committee (the Committee) is responsible for making recommendations to the Board on the Company's remuneration policy and, within the terms of the agreed policy, determining the total individual remuneration packages of the Executive Directors and members of the CET (Executives). The members of the Committee are set out on page 18.

The Committee has developed the remuneration policy to align executive remuneration with the interests of shareholders whilst meeting the imperative of recruiting and retaining the executive talent essential to the leadership of the Company. The remuneration policy was finalised after undertaking an extensive consultation process with shareholders and institutional bodies during the course of 2003 and 2004.

The remuneration policy is designed to establish a framework for remuneration which is consistent with the Company's scale and scope of operations, meets the recruitment needs of the business and is closely aligned with shareholder guidelines.

Deloitte & Touche LLP have been appointed by the Committee to provide it with independent advice on executive remuneration.

Remuneration policy

PRINCIPLES
The Committee has established four core principles which underpin the new remuneration policy for GSK. These are:

• securing outstanding executive talent;
• pay for performance and only for performance;
• robust and transparent governance structures; and
• a commitment to be a leader of good remuneration practice in the pharmaceutical industry.

In formulating the policy, the Committee decided that:

• the remuneration structure must support the business in a very competitive market place;
• UK shareholder guidelines will be followed to the maximum extent consistent with the needs of the business and the Company would maintain a regular dialogue with shareholders;
• global pharmaceutical companies are the primary pay comparator group;
• performance conditions would be based on the measurable delivery of strong financial performance and the delivery of superior returns to shareholders as compared with other pharmaceutical companies;
• a high proportion of the total remuneration opportunity will be based on performance-related remuneration, which will be delivered over the medium-term to long-term; and
• no ex-gratia payments will be made.

Overall, the policy is intended to provide median total remuneration for median performance. Poor performance will result in total remuneration significantly below the pay comparator group median, with the opportunity to earn upper quartile total remuneration for exceptional performance.

This strong alignment with performance is demonstrably in the interests of shareholders and provides the Executives with unambiguous signals about the importance of delivering success to the Company's shareholders.

COMMITMENT
The Committee will apply this policy on a consistent and transparent basis. Any significant change will be discussed with shareholders in advance of implementation.

PAY AND PERFORMANCE COMPARATORS
The following table sets out the companies used for pay and performance comparison:

The merger of Aventis and Sanofi-Synthelabo during 2004 reduced the size of the comparator group to 13 companies and GSK. The Committee subsequently determined that for a number of reasons, including focus of operation and market capitalisation, there was no other suitable company to add to the group.

GSK'S EXECUTIVE REMUNERATION CONSISTS OF THE FOLLOWING COMPONENTS:

BASE SALARY
Base salaries will be set by reference to the median for the relevant market. For Executives this is the pharmaceutical pay comparator group. Base salary is the only element of remuneration that is fixed.

ANNUAL BONUS
All bonuses are determined on the basis of a formal review of annual performance against stretching financial targets based on profit before interest and tax and are subject to detailed assessment of individual, business unit and group achievements against objectives.

In setting the bonus awards for 2004, the Committee took into account the achievement of management in maintaining growth on a CER basis, whilst absorbing £1.5 billion of lost sales to generics.

LONG-TERM INCENTIVES
The remuneration policy provides that annual long-term incentive awards will normally be made up of a performance share award and a share option award. The remuneration policy places greater emphasis on the use of performance shares rather than share options.

The Committee has considered which performance conditions should be applied to the long-term incentives. The Committee concluded that it was appropriate to measure performance using a combination of absolute financial results (based on earnings per share - EPS) and the delivery of superior value to shareholders (based on Total Shareholder Return - TSR).

For the Executives, the level of performance shares vesting is based on the Company's TSR relative to the performance comparator group over a three-year measurement period. In respect of the awards granted in 2004, if GSK is ranked at position 7 (the mid-point) of the performance comparator group, 35% of the shares will vest and if it is below that position then none of the shares will vest. Only if GSK is one of the top two companies will all of the shares vest. When determining vesting levels, the Committee will have regard for the Company's underlying financial performance.

The share options granted in 2004 to the Executives are linked to the achievement of compound annual EPS growth in excess of the Retail Prices Index (RPI) over the performance period, which is the three years following the grant of an option.

When setting EPS targets, the Committee considers the Company's internal projections and analysts' forecasts for GSK's EPS performance, as well as analysts' forecasts for the pharmaceutical industry.

For the 2004 grant, vesting increases on a straight-line basis for EPS performance between the hurdles set out in the table below.

Annualised growth in EPS		Percentage of award vesting
	RPI + 5%	100%
	RPI + 4%	75%
	RPI + 3%	50%
<	RPI + 3%	0%

This performance condition is substantially consistent with UK shareholder guidelines and expectations and is demanding when compared with those operated by other global pharmaceutical companies. This is consistent with the policy of providing pay for performance and only for performance.

Performance is measured over the three financial years following the grant of an option. The Committee has decided for the 2004 grant that there will be no performance retesting, so if the performance condition is not met after the three-year period, the option will lapse.

The performance criteria relating to performance shares and share options awarded and granted prior to 2004 are given in the Annual Report 2004.

PENSIONS
The Executives participate in GSK senior executive pension plans. The pension arrangements are structured in accordance with the plans operated for Executives in the country in which the Executives are likely to retire. Benefits are normally payable at age 60, although it has been agreed that Dr Yamada will retire at age 62.

Executive Director terms and conditions

The policy regarding the Executive Directors' contracts was the subject of extensive review and change during 2003. This resulted in a new framework for contracts for Executive Directors appointed in the future.

Dr Garnier, Mr Coombe and Dr Yamada agreed to changes in their contractual terms without compensation to bring their contractual terms broadly in line with the new contractual framework, including the reduction of contractual notice period from 24 to 12 calendar months. However, to honour certain aspects of their 'old' contractual terms, there are a number of individual features which will be retained. In the event of early termination by the Company, Dr Garnier and Dr Yamada would receive a cash sum equivalent to the total of their annual salary, on target bonus and pension contributions for the 12 months notice period. Mr Coombe will retire from the company on 31 March 2005.

TSR PERFORMANCE GRAPH
The graph below sets out the performance of the Company relative to the FTSE 100 index of which the Company is a constituent and, for information, to the median of the performance comparator group since the merger on 27 December 2000. The graph has been prepared in accordance with the Regulations and is not an indication of the likely vesting of awards granted under any of the Company's incentive plans.