Institutional investors delivered a stinging rebuke to merging drugs groups Glaxo Wellcome and SmithKline Beecham yesterday, as a third of shareholders refused to back a controversial pay package for new boss Jean-Pierre Garnier. The rebellion was the second sign of a backlash in the City against boardroom excess, following a revolt against a £10m one-off bonus award to Chris Gent, chief executive of Vodafone, last week.
Mr Garnier, who will be chief executive of the combined group Glaxo SmithKline, stands to get 20 times his salary in share options if the company's annual earnings grow by more than 3%. Based on the current share price, this means he could get options on over £15.5m of stock.
At an extraordinary general meeting of Glaxo yesterday morning, 28.8% of investors voted against the group's staff options scheme and a further 6.8% abstained. Detailed figures were unavailable from SmithKline, which said only that "about" 70% of its investors backed the scheme.
Glaxo chairman Sir Richard Sykes defended the options plan, saying: "Executive compensation has to be an incentive to drive the company for ward, make the company better and improve the share price."
He pointed out that the options would be worthless "on day one" and could only be exercised at a profit if the share price rises.
Private shareholders expressed disquiet, branding the scheme "extraordinary" and "extravagant". One said: "The last thing I'd want would be for Glaxo to be painted in terms of corporate greed."
Stuart Bell of Pirc, the corporate governance watchdog, said he believed the tide was turning against multi-million pound packages: "It's a straw in the wind from institutions saying enough's enough." Despite the rebellion, both Mr Garnier's pay and the merger of the two drugs groups were approved.
The meetings at the Queen Elizabeth centre in Westminster were besieged by a noisy group of animal rights activists, who shouted "scum" at people entering the building. They were protesting at the two companies' use of contract research by Huntingdon Life Sciences, the Cambridgeshire-based firm criticised two years ago for the alleged cruel treatment of puppies. Huntingdon is now under new management.
Many investors were concerned at the details of the merger. There were complaints about the decision to drop "Wellcome" and "Beecham" from the combined corporation's name.
One shareholder asked: "Why should we lose the name Beecham to the Americans?"
SmithKline chairman Sir Peter Walters defended the decision: "When you have four company names, to try to combine them into one is very difficult."
Others were concerned with pension arrangements, directors' notice periods and the potentially "unwieldy" size of the new company, which is scheduled to begin trading on September 25.
