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Summary Remuneration Report

for the year to 31 December 2006

Introduction

The Summary Remuneration Report sets out the annual remuneration of the Board earned in 2006, 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 in the Corporate governance section.

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.

GSK’s remuneration policy was agreed after an extensive consultation process with shareholders and institutional bodies during 2003 and 2004. The appropriateness of the elements of the policy is kept under review by the Committee.

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 policy for GSK is designed to secure outstanding executive talent, and to provide pay for performance and only for performance, within a transparent and robust governance structure.

GSK’s policy is based on the following key principles:

• 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 with the opportunity to earn upper quartile total remuneration for exceptional performance. Poor performance will result in total remuneration significantly below the pay comparator group median.

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 31.12.06 £m
Abbott Laboratories	US	38,144
Amgen	US	40,656
AstraZeneca	UK	42,036
Bristol-Myers Squibb	US	26,410
Eli Lilly	US	30,079
GlaxoSmithKline	UK	77,362
Johnson & Johnson	US	97,661
Merck	US	48,294
Novartis	Switzerland	77,066
Pfizer	US	95,281
Roche Holdings	Switzerland	80,157
Sanofi-Aventis	France	64,166
Schering-Plough	US	17,882
Takeda Pharmaceutical Company*	Japan	31,182
Wyeth	US	34,987
* only included for performance comparison

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 relevant stretching corporate targets and are subject to detailed assessment of individual, business unit and group achievements against objectives.

The Committee took into account the company’s success in achieving these targets, as well as individual performance when determining the bonus awards for 2006.

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. The performance share awards granted in February 2007 vest in accordance with the graph below.

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) measured over a three-year performance period.

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 2007 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 performance criteria relating to performance shares and share options awarded and granted prior to 2007 are given in the Annual Report 2006.

Performance periods ended 31 December 2006

The performance share awards for Executives in office in 2003 did not vest in 2006 because GSK’s relative TSR performance, over the performance period ended 31 December 2006, was below the median. The awards made in 2003 to other senior executives, including Dr Slaoui and Mr Heslop, were dependent in part on TSR performance and in part on EPS performance. Half of these awards vested as GSK’s EPS performance reached the target level for full vesting.

The share options granted in 2003 to the Executives vested in full.

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.

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 agreed to changes in his contractual terms, without compensation, to bring them 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 his ‘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 would receive a cash sum equivalent to the total of his annual salary, on target bonus and pension contributions for the 12-month notice period.

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				2006	2005
Directors of GSK	Fees and salary 000	Other benefits 000	Annual bonus 000	Total annual remuneration 000	Total annual remuneration 000
Executive Directors
Dr JP Garnier	$1,700	$633	$3,080	$5,413	$6,591
Dr M Slaoui	$370	$317	$497	$1,184	–
Mr J Heslop	£380	£31	£437	£848	£529
Non-Executive Directors
Sir Crispin Davis	£70	–	–	£70	£70
Sir Christopher Gent	£500	£1	–	£501	£500
Sir Ian Prosser	£95	–	–	£95	£100
Dr R Schmitz	£90	–	–	£90	£95
Mr T de Swaan	£70	–	–	£70	–
Sir Robert Wilson	£90	–	–	£90	£90
Mr L Culp	$136	–	–	$136	$136
Sir Deryck Maughan	$136	–	–	$136	$146
Dr D Podolsky	$100	–	–	$100	–
Former Directors
Mr J Coombe	–	£22	–	£22	£171
Dr M Barzach	£57	–	–	£57	£58
Sir Roger Hurn	–	–	–	–	£5
Sir Peter Job	–	–	–	–	£5
Sir Richard Sykes	–	£1	–	£1	£1
Dr T Yamada	$428	$493	$281	$1,202	$3,310
Dr L Shapiro	$144	$11	–	$155	$230
Total Remuneration	£2,982	£841	£2,523	£6,346	£7,346
Analysed as:
Executive Directors	£1,499	£545	£2,371	£4,415	£4,151
Non-Executive Directors	£1,116	£1	–	£1,117	£1,010
Former Directors	£367	£295	£152	£814	£2,185
Total Remuneration	£2,982	£841	£2,523	£6,346	£7,346

Remuneration for Directors on the US payroll is reported in Dollars. Dollar amounts are included in the totals based on conversion to Sterling at the average exchange rates for each year.

Following the merger, and in order to encourage employees to convert their non savings related options, held over Glaxo Wellcome or SmithKline Beecham shares or ADSs, for options over GlaxoSmithKline shares or ADSs, employees 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 $192,639 (2005 – $174,472) and Dr Yamada received $60,204 (2005 – $167,405) relating to options exercised under the EOI. Those amounts are included 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 1 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 long-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 2006 on exercise of options were: share option plans £1,449,028 (2005 – £2,265,825); Performance Share Plan (PSP) £1,285,677 (2005 – £1,431,804). Full details relating to the operation of the company’s share plans may be found in the 2006 Annual Report.

The accrued annual benefits under the defined benefit pension schemes operated by the Group were: Dr Garnier $1,201,831; Mr Heslop £110,906; Dr Slaoui €53,000 and $26,109; and Dr Yamada $168,521. In addition, Dr Garnier, Dr Slaoui and Dr Yamada are members of a money purchase scheme into which contributions of $183,840, $20,354 and $62,494, respectively, were paid during 2006.

Dr Burns joined the Board as a Non-Executive Director on 12 February 2007. No remuneration is shown for her in the table above.

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