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Summary remuneration report

for the year to 31st December 2005

INTRODUCTION

The Summary Remuneration Report sets out the annual remuneration of the Board earned in 2005, 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 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 Chairman of the Remuneration Committee continues to have regular dialogue with institutional investors regarding GSK’s remuneration policy.

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 GSK's remuneration policy. 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:

Table showing pay and performance comparators

Company	Country	Market Capitalisation 31.12.05 £m
Abbott Laboratories	USA	35,561
AstraZeneca	UK	44,693
Bristol-Myers Squibb	USA	26,140
Eli Lilly	USA	37,396
GlaxoSmithKline	UK	85,497
Johnson & Johnson	USA	103,950
Merck	USA	40,440
Novartis	Switzerland	80,419
Pfizer	USA	99,942
Roche Holdings	Switzerland	61,334
Sanofi-Aventis	France	70,997
Schering-Plough	USA	17,915
Takeda Pharmaceutical Company	Japan	27,949
Wyeth	USA	35,952

GSK's executive remuneration consists of the following components:

Base salary

Base salaries are 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 determining the bonus awards for 2005, the Committee took into account the excellent financial performance during the year and the encouraging progress in building the pipeline of new products.

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) measured against the comparator group.

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. If GSK is ranked at position seven (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 to the company’s underlying financial performance.

The performance conditions applying to the share options granted to the Executives are linked to the achievement of compound annual EPS growth in excess of the Retail Prices Index (RPI) over three year performance periods.

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.

Vesting of share options granted in February 2006 increases on a straight-line basis for EPS performance between the hurdles as set out in the graph below.

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.

The Committee has decided that for the awards granted since 2004, 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 2006 are given in the Annual Report 2005.

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 was agreed that Dr Yamada could retire at age 62, he will retire from the company on 1st June 2006.

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 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 Heslop’s contract follows the new framework.

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 to the performance comparator group. It has been prepared in accordance with the Regulations and is not an indication of the likely vesting of awards granted under any of the incentive plans.

Annual Remuneration

ANNUAL REMUNERATION					2005	2004
Directors of GSK	Fees and salary 000	Other benefits 000	Annual bonus 000	Deferred bonus 000	Total annual remuneration 000	Total annual remuneration 000
Executive Directors
Dr JP Garnier	$1,582	$641	$2,812	$1,556	$6,591	$4,559
Mr J Heslop	£240	£9	£280	-	£529	-
Dr T Yamada	$763	$739	$1,110	$698	$3,310	$2,303
Former Executive Director
Mr J Coombe	£139	£32	-	-	£171	£515
Total Executive Directors	£1,667	£799	£2,436	£1,238	£6,140	£4,265
Current Non-Executive Directors
Mr L Culp	$136	-	-	-	$136	$97
Sir Crispin Davis	£70	-	-	-	£70	£57
Sir Christopher Gent	£500	-	-	-	£500	£175
Sir Deryck Maughan	$146	-	-	-	$146	$57
Sir Ian Prosser	£100	-	-	-	£100	£65
Dr R Schmitz	£95	-	-	-	£95	£72
Dr L Shapiro	$230	-	-	-	$230	$182
Sir Robert Wilson	£90	-	-	-	£90	£66
Former Non-Executive Directors
Dr M Barzach	£58	-	-	-	£58	£78
Sir Christopher Hogg	-	-	-	-	-	£370
Sir Roger Hurn	-	£5	-	-	£5	-
Sir Peter Job	-	£5	-	-	£5	£57
Mr J McArthur	-	-	-	-	-	$60
Mr D McHenry	-	-	-	-	-	$42
Sir Richard Sykes	-	£1	-	-	£1	£1
Total Non-Executive Directors	£1,195	£11	-	-	£1,206	£1,180
Total remuneration	£2,862	£810	£2,436	£1,238	£7,346	£5,445

Remuneration for Directors on the US payroll is reported in Dollars. Amounts have been converted to Sterling at the average exchange rates for each year.

Following the merger, those participants in the legacy schemes who elected to exchange their legacy options for options over GSK shares were granted an additional cash benefit equal to 10% of the grant price of the original option. This additional benefit known as the Exchange Offer Incentive (EOI) is only payable when the new option is exercised or lapses above market value. During the year Dr Garnier received $174,472 (2004 – $335,730) and Dr Yamada received $167,405 (2004 – nil) relating to options exercised under the EOI. Those amounts are included in other benefits in the table above.

Non-Executive Directors are required to receive a significant part of their fees in the form of shares or ADSs and from 1st October 2004, all Non-Executive Directors, except the Chairman, are required to take at least 25% of fees under the fee allocation arrangement. They can also elect to invest part or all of the remaining balance of their fees in the form of shares or 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 Director leaves the Board.

In addition to annual compensation, GSK operates share plans to provide incentives to Executive Directors to achieve longer-term growth in shareholder value. Gains under such plans are recognised on exercise or maturity of the award, but reflect value earned over a period of years. The timing of exercise is normally at the discretion of the Director. Gains in 2005 on exercise of options were: share option plans £2,265,825 (2004 – £3,618,060); Performance Share Plan (PSP) £1,431,804 (2004 – £475,149). Full details relating to the operation of the company’s share plans may be found in the 2005 Annual Report.

In 2001, following the merger, Dr Garnier, Mr Coombe and Dr Yamada were awarded a one-off special deferred bonus as members of the CET. Each was awarded an amount equivalent to his salary on 31st December 2001 and this was notionally invested in GSK shares or ADSs on 15th February 2002. The amount of the bonus vesting on 15th February 2005 was equivalent to the then value of shares or ADSs notionally acquired in February 2002 plus dividends reinvested over the period. Dr Garnier received $1,556,324, and Dr Yamada $697,663. These amounts were paid in February 2005 and are included in the table above. Mr Coombe waived his entitlements to the 2001 special deferred bonus of £383,924, 2004 annual bonus of £650,370 and prorated 2005 bonus of £106,870. The company made a contribution in 2005 to the pension plan of £1,141,164 to enhance his pension entitlement.

Mr de Swaan joined the Board as a non-executive Director on 1st January 2006. No remuneration is shown for him in the table above.

The accrued annual benefits under the defined benefit pension schemes operated by the Group were: Dr Garnier $1,092,697; Mr Heslop £74,505; and Dr Yamada $209,631. In addition, Dr Garnier and Dr Yamada are members of a money purchase scheme into which contributions of $154,172 and $73,679, respectively, were paid during 2005.

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