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Another shareholder rebellion against fat cat retention bonuses

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Glaxo faces bonus rebellion

By Tom Burgis

Published: May 22 2008 03:00 | Last updated: May 22 2008 03:00

GlaxoSmithKlinehas become the latest company to face a shareholder revolt over bonus payments to retain an executive in a sign of increasing investor stridency over the issue.

Shareholders yesterday delivered a strong protest over a £2.5m bonus paid to an executive after he was passed over for the top job.

Glaxo is a veteran of rancorous pay disputes with investors. More than one in three voting shareholders failed to support the remuneration report for last year at its annual meeting.

Of ballots cast, 61 per cent voted in favour, 10 per cent against and 29 per cent abstained. Excluding abstentions, 86 per cent backed the report – a low level of shareholder support on a pay vote.

The revolt comes a day after a fraction less than half of Royal Dutch Shell’s shareholders declined to back a plan to pay one-off €1m (£800,000) retention bonuses to the three executives who are likely candidates to succeed the departing chief executive next year.

There is a growing trend for investors to voice displeasure with the practice of paying bonuses, often not linked to performance, to persuade senior managers to stay in their jobs. The revolt also marks broader fears that companies are pushing through ad hoc payments ahead of a downturn.

“GSK is another example where there has been insufficient justification as to why these arrangements are required,” said one top-20 investor who voted against the remuneration report.

In February, Glaxo made a one-off award to Chris Viehbacher, head of pharmaceuticals in the US, of stock worth about £2.5m. The shares become payable in two tranches, the first at the end of this year, the balance in 2011, provided Mr Viehbacher is still at the company.

Mr Viehbacher was one of two candidates who lost out to Andrew Witty last year in the race to succeed Jean-Pierre Garnier as chief executive. The other, David Stout, head of pharmaceuticals, has since left.

A leading shareholder said it abstained because “the company carried out a convincing consultation process”. Unlike the Shell bonuses, the Glaxo award is linked to performance.

The company said: “This award was made following extensive consultation with shareholders, who indicated that they were supportive of the proposal.”

In 2002, Glaxo investors expressed outrage at plans to offer Mr Garnier a package worth £11m and the remuneration report was voted down in 2003.

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