GSK Annual Report 2002

Performance graph
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Notes
31/12/00
31/12/01
GlaxoSmithKline Total Return Index FTSE 100 Total Return Index
GlaxoSmithKline Pharma Peers Return Index
1.The TSR graph starts at the beginning of the first accounting year
following the formation of GlaxoSmithKline and uses as a base the share
price on 31st December 2000. Calculations for the graph are based on spot
prices at the beginning and end of each year as required by the Directors
Remuneration Report Regulations 2002, whereas GlaxoSmithKline’s
performance conditions under the Performance Share Plan (PSP) use average
prices over a period of a year. Therefore the above graph should not be
taken as an indication of the likely vesting of awards granted under the PSP.
The average price method was selected for the PSP because it smoothes out
volatility and reduces the impact of any particularly large temporary price
movements at either the beginning or end of the performance period.
2. Past performance should not be taken as a guide to future performance.
Executive Directors’ terms and conditions
The following section sets out the date and unexpired term of
each Executive Director’s contract, and details of other provisions
necessary to enable shareholders to estimate the liability of the
company in the event of early termination.
In determining its overall policy in respect of service contracts,
the Committee aims to balance the costs associated with any early
termination provisions with the need to protect GlaxoSmithKline’s
intellectual property rights. The Committee maintains a close watch,
through its advisors, on trends in contractual terms amongst other
companies in the competitor panel and in the wider market place.
It is committed to ensuring that, in achieving this balance, its
processes are fair, while limiting as far as possible the scope for
‘rewarding failure’. The Committee has considered the recent
guidance produced by the Association of British Insurers and the
National Association of Pension Funds in the UK. It will take this
into account, alongside market practice, when reviewing
contractual terms.
Executive Directors are employed on service contracts under which
the employing company is required to give 24 calendar months’
notice of termination and the Executive Directors are required to
give 12 calendar months’ notice.
Executive Directors’ service contracts contain ‘garden leave’,
non-competition, non-solicitation and confidentiality clauses.
31/12/02
The Remuneration Committee currently believes that one year
contracts would not be in the best interest of GlaxoSmithKline
with regard to offering a globally competitive overall remuneration
package and securing maximum protection for its intellectual
property rights.
Remuneration report GlaxoSmithKline 43
The Remuneration Committee believes that the current termination
payments due under Executive Director’s contracts are justified
because they represent fair and reasonable compensation in the
event that the contracts are terminated, given market practice and
the associated restrictions arising from the need to protect
intellectual property.
Dr J P Garnier
Dr Garnier has a service agreement with SmithKline Beecham
Corporation dated 2nd December 1999. The agreement expires
on 31st October 2007, being the last day of the month in which
Dr Garnier reaches his 60th birthday. Dr Garnier’s contract specifies
the compensation to be paid on termination of his employment.
Dr Garnier’s current basic salary is US$1,450,000 and will be
increased to US$1,522,500 on 1st April 2003.
Dr Garnier may terminate the agreement on giving 12 calendar
months’ written notice, following which he is credited with an
extra three years’ pension contributions and he will be treated
as if he is three years older than his actual age.
SmithKline Beecham Corporation may terminate the agreement on
giving 24 calendar months notice. On termination by SmithKline
Beecham Corporation, other than for cause, Dr Garnier is entitled
to receive, within 30 days, a lump sum representing his salary and
bonus for the notice period. The bonus is calculated on the basis
of ‘on target’ performance which gives a bonus payout of
100 per cent of basic salary.
In addition, for the first 12 months of the notice period Dr Garnier
is entitled to receive share entitlements, under stock and share
incentive plans available to senior executives in the USA, except
to the extent of any part of that period that would fall beyond his
retirement date, and he can be awarded only one annual share
option grant and Performance Share Plan grant after the date of
the termination notice.
For pension purposes, he is provided with pension benefits such
that he is treated, by way of additional pension contributions or
otherwise, as if his employment had ended three years after the
actual termination date, or three years after the expiry of his service
agreement in the event that Dr Garnier’s employment continues
until the expiry of the service agreement. In addition, Dr Garnier
and his spouse will be treated as if they are both three years older
than their actual ages on the termination (other than for cause) or
expiry of the service agreement, as applicable, for the purpose of
calculating annuity rates on which the pension will be based.
He would also receive outplacement counselling and financial
planning and advice for two years following termination, but this
shall be limited to $20,000 per year and he can choose to have
life assurance cover which will provide a benefit of two times his
salary until his 65th birthday.
Dr Garnier will continue to receive his benefits, or their cash value,
during the notice period. If Dr Garnier’s agreement is terminated
by reason of disability he will be treated as if still employed for the
purposes of his pension benefits until his retirement date.
In addition, if any payment or distribution to or for the benefit of
Dr Garnier would be subject to excise tax, or any interest or
penalties are incurred, Dr Garnier is entitled to receive an additional
cash payment so that he is in the same after-tax position as if no
such additional tax had been imposed.