The Summary remuneration report sets out the annual remuneration earned in 2002 together with any gains under long-term incentive arrangements. It also describes the background to and outlines the Group’s remuneration policy together with the performance graph as required by schedule 7A of the Companies Act 1985, The Directors’ Remuneration report Regulations 2002, (‘schedule 7A’).

	Annual remuneration
					2002 Total	2001 Total
		Fees and	Other	Annual	annual	annual
		salary	benefits	bonus	remuneration	remuneration
	Directors of GlaxoSmithKline	£000	£000	£000	£000	£000
	Dr J P Garnier	967	132	1,353	2,452	3,450
	Mr J D Coombe	475	15	457	947	1,326
	Executive Directors	1,442	147	1,810	3,399	4,776
	Sir Richard Sykes	154	8	-	162	414
	Sir Christopher Hogg	252	-	-	252	63
	Sir Roger Hurn	121	-	-	121	135
	Sir Peter Walters	51	2	-	53	136
	Mr P A Allaire	68	-	-	68	68
	Dr M Barzach	100	-	-	100	102
	Mr D C Bonham	-	5	-	5	29
	Sir Peter Job	59	-	-	59	63
	Mr J H McArthur	62	-	-	62	73
	Mr D F McHenry	62	-	-	62	68
	Sir Ian Prosser	59	-	-	59	63
	Dr R Schmitz	69	-	-	69	70
	Dr L Shapiro	62	-	-	62	68
	Mr J A Young	29	2	-	31	80
	Non-Executive Directors	1,148	17	-	1,165	1,432
	Total remuneration	2,590	164	1,810	4,564	6,208

Sir Richard Sykes, Sir Peter Walters and Mr Young retired from the Board of GlaxoSmithKline at the Annual General Meeting on 20th May 2002. Following their retirement they received the value of their shares and ADSs as awarded under the Non-Executive Directors’ share arrangement and equivalent SmithKline Beecham arrangement. As at 20th May 2002 they had been awarded shares and ADSs with a total value at the date of award, as indicated: Sir Richard Sykes £135,530; Sir Peter Walters £249,876; Mr Young £187,034. On 20th May 2002 the value of the shares and ADSs paid to them was: Sir Richard Sykes £122,860; Sir Peter Walters £241,468; Mr Young £174,354. The change in value is attributable to dividends re-invested and the change in share price between the dates of award and 20th May 2002. Mr Young has elected to receive the value of shares and ADSs in three equal annual instalments and, accordingly, received £58,118 in 2002.

Following Sir Richard Sykes’ retirement from the Board, and in recognition of his services to the Company, the Board decided to make an augmentation payment to the pension plan of £300,000 in respect of Sir Richard. It was also agreed that for a period of two years from 1st June 2002 Sir Richard be appointed Senior Advisor to the company, at a salary of £49,000 per annum and he received £28,583 in respect of the period from 1st June 2002 to 31st December 2002 in addition to the fees and salary above.

Mr Bonham resigned as a Non-Executive Director on 21st May 2001. During 2002 Mr Bonham received £5,000 in respect of 2001 and the value of his shares, as at 21st May 2001, as allocated under the Non-Executive Directors’ share arrangements. As at 21st May 2001 he had been awarded shares valued at £4,539 at the date of award. On 21st May 2001 these shares were worth £4,860. The change in value is attributable to dividends re-invested and the change in share price between the date of award and 21st May 2001.

As set out in the shareholders information, Non-Executive Directors are required to receive a significant part of their fees in the form of shares and ADSs and may also elect to invest part or all of the balance of their fees in the form of shares and ADSs. The value of these shares and ADSs at the dates of award are included in fees and salary above. These shares and ADSs are not paid out until the Directors’ retirement from the Board.

In addition to annual compensation, GlaxoSmithKline operates share-based schemes to provide incentives to Executive Directors to achieve longer-term growth in shareholder value. Gains under such schemes are recognised on exercise or award, but reflect value earned over a period of years. The timing of exercise is normally at the discretion of the Director. Realised gains in 2002 on exercise of options were: share option schemes £nil (2001 – £2,408,992); long-term incentive plan £293,370 (2001 – £3,307,203).

In previous years, Dr Garnier’s fees and salary included GlaxoSmithKline’s match on compensation that is deferred. For 2002 this has been included within contributions to money purchase schemes. Dr Garnier’s fees and salary for 2001 have been restated by £58,419, reflecting GlaxoSmithKline’s match in 2001, in order to provide consistent presentation.

The accrued annual benefits under the defined benefit schemes operated by the Group were: Dr J P Garnier £929,193; Mr J D Coombe £290,834; Sir Richard Sykes £729,046. In addition, Dr J P Garnier is also a member of a money purchase scheme into which contributions of £92,800 were paid.

None of the above Directors received expenses during the year requiring separate disclosure as defined by schedule 7A.

The Remuneration Committee
In reviewing governance arrangements, the Board decided during the year to separate the roles of the former Remuneration and Nominations (R&N) Committee in order to give a separate individual Board focus to both functions. Accordingly, a Remuneration Committee, with terms of reference revised to take into account latest governance standards, assumed the remuneration responsibilities of the previous R&N Committee in October 2002. The members of the Remuneration Committee are set out in The Board section.

Remit of the Remuneration Committee
The Remuneration Committee considers and regularly reviews the Group’s policy on Executive remuneration for approval by the Board and determines the individual remuneration packages of the members of the CET.

Towers Perrin, a leading firm of remuneration and benefits consultants, advises the Remuneration Committee with regard to the remuneration of senior executive management and the Non-Executive Directors. In 2003, the Remuneration Committee engaged Deloitte and Touche to conduct an additional independent review of GlaxoSmithKline’s current remuneration policy.

Background
GlaxoSmithKline is one of the world’s leading research-based pharmaceutical and healthcare companies. As such, it has to be global in outlook and operations. The Group employs over 100,000 people in over 100 countries. Over 90 per cent of its sales are generated outside the UK.

The USA is the largest pharmaceutical market in the world and is fundamental to GlaxoSmithKline’s success and profitability. More than 50 per cent of GlaxoSmithKline’s pharmaceutical sales are in the USA. The CEO is based there, along with another eight of the thirteen person CET.

The pharmaceutical industry is international, highly specialised and is characterised by a handful of global companies which compete as intensely for talent as they do for business. The industry’s top managers and scientists are very much in demand, widely known in the industry and are internationally and corporately mobile. The way all managers and scientists in GlaxoSmithKline are rewarded and developed therefore has to be industry-competitive. It is crucial to their retention and effectiveness. Key market data with regard to remuneration for senior management, science based positions and sales is provided by a survey which covers the following group of global pharmaceutical companies (the "competitor panel"):

The majority of these are US-based companies which operate globally. These companies are competing for the same talent and any perceived shortfall in GlaxoSmithKline’s competitive position could lead to a loss of key talent to competitor companies.

GlaxoSmithKline’s remuneration policy was set out at the time of the merger, endorsed by shareholders then, and has made a major contribution to the success of the merger.

Remuneration policy
GlaxoSmithKline’s remuneration policy is to pay at industry competitive levels with a heavy emphasis on pay for performance and ‘at risk’ remuneration. The policy is designed to:

• focus on long-term sustained success.
• focus on shareholder value through a strong emphasis on share plans.
• set high levels of minimum achievement.
• ensure integrated performance assessment throughout the management team to deliver concerted action towards success.
• provide opportunities to earn globally competitive rewards, but only if performance is delivered.

GlaxoSmithKline’s executive remuneration consists of four components: salary, performance bonus, long-term incentives and benefits. The relative importance for the Executive Directors of the fixed and variable elements of pay is illustrated in the table below:

To provide appropriate incentives for exceptional performance, the Committee’s policy is to provide market referenced opportunities beyond this for truly outstanding performance. However, the Committee is aware that current levels of long-term incentives do not deliver this policy. Independent market data demonstrate that GlaxoSmithKline’s top management remuneration is currently uncompetitive with regard to long-term incentives. As a result their total remuneration opportunity for 2002 was well below the industry median.

The Remuneration Committee will continue to monitor closely the quantum and trend of our competitors’ awards and will consider what should be done in the best interests of the company and its shareholders.

The vesting of options granted to Executive Directors is subject to the performance condition that business performance earnings per share (EPS) growth, excluding currency and exceptional items, should be at least nine percentage points more than the increase in the UK Retail Price Index over any three year measurement period.

Vesting of awards granted under the performance share plan are subject to two performance conditions each relating to half of the awards, business performance EPS growth as for share options and Total Shareholder Return (TSR) whereby GlaxoSmithKline’s TSR is compared to the TSR of the UK FTSE 100 Index over the same period. Even if these performance conditions are met, vesting of these awards made to the CET is subject to approval by the Remuneration Committee. These conditions were selected at the time of the merger and aim to achieve a balance between the expectations of UK institutional investors and global market practice.

Executive Directors are employed under service contracts in which the employing company is required to give 24 calendar months notice of termination and the Executive Directors are required to give 12 calendar months notice. Dr JP Garnier’s service agreement expires on 31st October 2007 and Mr Coombe’s expires on 31st March 2005. The compensation to be paid in the event of termination includes salary, incentives and pensions.

Non-Executive Directors of GlaxoSmithKline do not have service contracts but instead have letters of appointment. To enhance the link between Directors and shareholders, GlaxoSmithKline requires Non-Executive Directors to receive a significant part of their fees in the form of shares allocated to a share account and offers the opportunity to invest part or all of the balance of fees in a share account. These shares are not paid out until the Directors’ retirement from the Board, or at a later date, on the basis of dividends being reinvested in the interim.

Performance graph
The new regulations covering Directors’ remuneration require that a graph be presented showing the company’s total shareholder return (TSR) against the TSR performance of a broad equity market index. The following graph shows GlaxoSmithKline’s TSR performance against the FTSE 100 which has been chosen because it is the principal index in which the company’s shares are quoted and against the competition panel which indicates GlaxoSmithKline’s relative performance against its peers.

Notes
1. The TSR graph above starts at the beginning of the first accounting year following the formation of GlaxoSmithKline plc and uses, as a base, the share price on 31st December 2000. Calculations for the graph are based on spot prices at the beginning and end of each year as required by the Directors Remuneration Report Regulations 2002, whereas GlaxoSmithKline’s performance conditions use average prices over a period of a year. Therefore the above graph should not be taken as an indication of the likely vesting of awards granted under GlaxoSmithKline’s Performance Share Plan. The average price method was selected because it smoothes out volatility and reduces the impact of any particularly large temporary price movements at either the beginning or end of the performance period.

2. Past performance should not be taken as a guide to future performance.