GSK Annual Report 2002

40 GlaxoSmithKline Remuneration report
2002 Directors’ remuneration report
This report is submitted to shareholders by the Board for approval
at the Annual General Meeting, as referenced in the Chairman’s
letter and notice of Annual General Meeting, which has been sent
to all shareholders.
This report describes the background to and outlines the Group’s
remuneration policy. It also gives required information about the
earnings of Directors and senior management in 2002, as well as
about Directors’ interests in the shares of GlaxoSmithKline and in
contracts.
References to GlaxoSmithKline shares and ADSs mean, respectively,
Ordinary Shares of GlaxoSmithKline plc of 25p and American
Depositary shares of GlaxoSmithKline plc. Each ADS represents
two GlaxoSmithKline shares.
The Remuneration Committee
In reviewing governance arrangements, the Board decided during
the year to separate the roles of the former Remuneration and
Nominations (R&N) Committee in order to give a separate individual
Board focus to both functions. Accordingly a Remuneration
Committee, with terms of reference revised to take into account
latest governance standards, assumed the remuneration
responsibilities of the previous R&N Committee in October 2002.
The members of the Remuneration Committee, and previously the
R&N Committee, are and have been at all times when the matters
relating to the directors’ remuneration for 2002 have been
considered: Mr Allaire (Chairman), Dr Barzach, Sir Roger Hurn,
Mr McArthur, Mr McHenry and Mr Young until his retirement.
Mr Allaire succeeded Mr Young as chairman of the R&N Committee
on 20th May 2002. Sir Peter Job was appointed a member of the
Committee on 7th February 2003. The Chairman and the Chief
Executive Officer (CEO) are invited to attend the Committee’s
meetings except when their own remuneration is being considered.
The Board will review the current terms of reference of all its
committees in the light of the Higgs’ Review of the role and
effectiveness of non-executive directors and consequent changes
to the Combined Code. Any material changes to the Remuneration
Committee’s terms of reference will be reported in next year’s
report.
Remit of the Remuneration Committee
The Remuneration Committee considers and regularly reviews the
Group’s policy on Executive remuneration for approval by the
Board and determines the individual remuneration packages of
the members of the Corporate Executive Team.
The policy set by the Remuneration Committee shapes
remuneration at other levels within the Group affecting the
arrangements for the management population as a whole
(approximately 11,000 individuals, representing over 10 per cent
of the employee population).
Towers Perrin, a leading firm of remuneration and benefits
consultants, provides strategic advice to GlaxoSmithKline on general
remuneration and benefits planning and also provides market data.
Towers Perrin also advises the Remuneration Committee, under a
separate mandate, with regard to the remuneration of senior
executive management and the Non-Executive Directors. Changes
to the remuneration of the Non-Executive Directors are determined
by the GlaxoSmithKline Board itself on advice from the
Remuneration Committee.
In 2003, the Remuneration Committee engaged Deloitte & Touche
to conduct an additional independent review of GlaxoSmithKline’s
current remuneration policy, including its competitiveness, and to
advise the Committee as to the shaping and development of future
remuneration policy in the context of GlaxoSmithKline’s corporate
base in the UK and the competitive needs of the business from a
global point of view.
Background
GlaxoSmithKline is one of the world’s leading research-based
pharmaceutical and healthcare companies. As such, it has to
be global in outlook and operations. The Group employs over
100,000 people in over 100 countries. Over 90 per cent of its
sales are generated outside the UK.
The USA is the largest pharmaceutical market in the world and is
fundamental to GlaxoSmithKline’s success and profitability. More
than 50 per cent of its pharmaceutical sales are in the USA. The
Chief Executive Officer is based there, along with another eight of
the thirteen person Corporate Executive Team (CET). The CET has
considerable global experience with over half the group having
worked outside their home country.
The quality and motivation of management matter enormously
in a very large and complex company like GlaxoSmithKline. A
considerable corporate effort is required to recruit, develop and
motivate talented people, and to ensure that managers at each
level have the necessary breadth of experience, knowledge and
leadership skills.
The pharmaceutical industry is international and highly specialised.
It is characterised by a handful of global companies which compete
as intensely for talent as they do for business. The industry’s top
managers and scientists are very much in demand, widely known
in the industry and are internationally and corporately mobile. The
way all managers and scientists in GlaxoSmithKline are rewarded
and developed therefore has to be industry-competitive. It is crucial
to their retention and effectiveness. Key market data with regard to
remuneration for senior management, science based positions and
sales is provided by a survey which covers the following group of
global pharmaceutical companies (the ‘competitor panel’):
Market Cap
Constituents of the 31.12.02
Competitor Panel Location £m
Abbott Laboratories USA 38,816
AstraZeneca UK 38,154
Aventis France 26,941
Bristol-Myers Squibb USA 27,854
Eli Lilly USA 44,313
Johnson & Johnson USA 99,105
Merck USA 79,103
Novartis Switzerland 65,390
Pfizer USA 117,011
Pharmacia USA 33,499
Roche Switzerland 30,409
Schering-Plough USA 20,221
Wyeth USA 30,796
At 31st December 2002 the market capitalisation of
GlaxoSmithKline was £71,809 million, compared to the average
market capitalisation of the group of £51,673 million.