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Summary Remuneration Report
Introduction
The Summary Remuneration Report sets out the annual remuneration of the Board earned in 2007, together with any gains made under long term incentive arrangements. It also describes the background and outlines the Group's re numeration 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 the Corporate governance page.
The Committee has developed the remuneration policy to align executive remuneration with the interests of share holders whilst meeting the imperative of recruiting and retaining the executive talent essential to the leadership of the company.
The company has announced the appointment of its new CEO, effective May 2008. A dialogue has begun, with the purpose of reviewing the alignment of the remuneration structure with the new business priorities set by the new CEO. This may lead to changes being considered over the coming year.
The Chairman of the Remuneration Committee continues to have regular dialogue with institutional investors regarding GSK's remuneration policy.
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 maxi mum 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 in a consistent and transparent
way. Any significant change will be discussed with shareholders in
advance of implementation.
Pay and performance comparators
| Company |
Country
|
Market
Capitalisation 31.12.07 £m |
|---|---|---|
| Abbott Laboratories |
US
|
45,822
|
| Amgen |
US
|
25,322
|
| AstraZeneca |
UK
|
32,549
|
| Bristol-Myers Squibb |
US
|
26,486
|
| Eli Lilly |
US
|
31,955
|
| GlaxoSmithKline |
UK
|
70,452
|
| Johnson & Johnson |
US
|
96,264
|
| Merck |
US
|
63,509
|
| Novartis |
Switzerland
|
74,112
|
| Pfizer |
US
|
80,550
|
| Roche Holdings |
Switzerland
|
63,543
|
| Sanofi-Aventis |
France
|
65,724
|
| Schering-Plough |
US
|
21,854
|
| Takeda Pharmaceutical Company* |
Japan
|
25,196
|
| Wyeth |
US
|
31,944
|
| *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 annual cash bonuses are determined on the basis of a formal review of annual performance against relevant stretching financial 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 Executives' performance, when determining the bonus awards for 2007.
Looking forward, to drive the necessary changes through the business, the Committee may set additional targets with associated bonuses for the achievement of specific operational goals. Any incremental bonus will be in the form of GSK shares deferred for a period and will not exceed 100% of salary.
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 2008 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 2008 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 granted prior to 2008 are given in the Annual Report 2007.
Performance periods ended 31 December 2007
The performance share awards for the Executive Directors (excluding Dr Slaoui), over the performance period ended 31 December 2007, vested in part (38.47%) because GSK's relative TSR performance placed the company above the median of the comparator group.
The awards made to other senior executives in 2004, including Dr Slaoui, were dependent in part on TSR performance and in part on EPS performance. The TSR portion vested in part and the EPS portion vested in full.
The share options granted in 2004 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 since then.
In the event of early termination by the company, Dr Garnier, who will retire from the Board in May 2008, would receive a cash sum equivalent to the total of his annual salary, on target bonus and pension contributions for the balance of his twelve 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 |
|
|
|
2007
|
2006
|
|---|---|---|---|---|---|
| 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 |
$1,810
|
$1,516
|
$2,709
|
$6,035
|
$5,413
|
| Dr M Slaouir |
$710
|
$321
|
$843
|
$1,865
|
$1,184
|
|
|
|
|
|
|
|
| Mr J Heslop |
£438
|
£16
|
£410
|
£864
|
£848
|
| Non-Executive Directors | |||||
| Prof Sir Roy Anderson |
£23
|
-
|
-
|
£23
|
-
|
| Sir Crispin Davis |
£70
|
-
|
-
|
£70
|
£70
|
| Sir Christopher Gent |
£575
|
£1
|
£576
|
£501
|
|
| Sir Ian Prosser |
£95
|
-
|
-
|
£95
|
£95
|
| Dr R Schmitz |
£70
|
-
|
-
|
£70
|
£90
|
| Mr T de Swaan |
£100
|
-
|
-
|
£100
|
£70
|
| Sir Robert Wilson |
£90
|
-
|
-
|
£90
|
£90
|
|
|
|
|
|
|
|
| Dr S Burns |
$124
|
-
|
-
|
$124
|
-
|
| Mr L Culp |
$127
|
-
|
-
|
$127
|
$136
|
| Sir Deryck Maughan |
$136
|
-
|
-
|
$136
|
$136
|
| Dr D Podolsky |
$191
|
-
|
-
|
$191
|
$100
|
| Former Directors | |||||
| Mr J Coombe |
-
|
£69
|
-
|
£69
|
£22
|
| Dr M Barzach |
£56
|
-
|
-
|
£56
|
£57
|
| Sir Richard Sykes |
-
|
£1
|
-
|
£1
|
£1
|
|
|
|
|
|
|
|
| Dr T Yamada |
-
|
$250
|
-
|
$250
|
$1,202
|
| Dr L Shapiro |
$85
|
-
|
-
|
$85
|
$155
|
| Total remuneration |
£3,104
|
£1,131
|
£2,186
|
£6,421
|
£6,346
|
| Analysed as: | |||||
| Executive Directors |
£1,693
|
£935
|
£2,186
|
£4,814
|
£4,415
|
| Non-Executive Directors |
£1,312
|
£1
|
-
|
£1,313
|
£1,117
|
| Former Directors |
£99
|
£195
|
-
|
£294
|
£814
|
| Total remuneration |
£3,104
|
£1,131
|
£2,186
|
£6,421
|
£6,346
|
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 $1,132,994 (2006 - $192,639), in EOI payments as a result of exercising options granted to him in March and November 1997, during February and August 2007. These options would have expired in March and November 2007 had they not been exercised. Dr Yamada received $184,516 (2006 - $60,204) and Mr Coombe received £67,200 (2006 - £nil) 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 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 2007 on exercise of options were: share option plans £2,111,159 (2006 - £1,118,372); Performance Share Plan (PSP) £74,400 (2006 - £1,285,677). Full details relating to the operation of the company's share plans may be found in the 2007 Annual Report.
The accrued annual benefits under the defined benefit pension schemes operated by the Group were: Dr Garnier $1,235,053; Mr Heslop £142,257; Dr Slaoui €53,000 and $71,559. In addition, Dr Garnier and Dr Slaoui are members of a money purchase scheme into which contributions of $198,475 and $85,212, respectively, were paid during 2007.
Dr Burns and Professor Sir Roy Anderson joined the Board as Non-Executive Directors on 12 February 2007 and 1 October 2007 respectively.
None of the above Directors received reimbursement for expenses during the year requiring separate disclosure as required by the Regulations.
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