Shareholders in pharmaceuticals giant GlaxoSmithKline heralded a new era in corporate accountability yesterday (May 19) by voting against its controversial pay and benefits package for senior executives.
Anger focussed on £22m "golden parachute" payment that GSK chief executive Jean-Pierre Garnier would receive if he lost his job. Last November, the company was also forced to abandon a new pay deal for Garnier.
GSK’s share price has fallen by a third since Garnier took over in late 2000, when Glaxo and SmithKline merged
Yesterday's defeat was all the more significant because major institutional investors such as Standard Life and Axa voted against the remuneration report. The 51:49 vote against the pay proposals do not include around 20 per cent of shareholders who abstained.
"This is a new world we have entered here," said Peter Montagon of the Association of British Insurers. "Shareholders have given a clear signal that the severance package available to Mr Garnier is far too generous and constitutes a serious breach of our guidelines. The outcome of the vote means that the principles of good practice have been upheld. In particular it shows that shareholders will not tolerate arrangements that have potential to reward executives for failure."
But one former GSK employee made redundant by the company put it more bluntly: "Jean-Pierre Garnier, the chief executive, isn't a fat cat, he's something else. He's a cat burglar, robbing us blind."
Union leaders have joined the chorus of voices demanding further action to curb fat cat excesses. Derek Simpson, joint general secretary of Amicus, said the Glaxo vote represented "the dawning of a new era". And he added: "I am sure that no other company or executive will want to experience the same level of humiliation."
Another official said the Government should bring in new legislation to tackle executive greed and urged ministers not to accept business demands for any measures to be voluntary.
Amicus said that it had drawn up five tests on a company's performance, covering equal pay, pensions, health and safety and redundancies, which it would use to target other companies. "Having tasted blood, we will now apply the tests more stringently than ever. We will tell our people on the ground that we can win and teach the fat cats a lesson," a union official said.
The Transport and General Workers Union also called on the Government to give workers the right in law to be consulted about executive pay. "The time has come for a tough new law on boardroom greed, with radical measures giving workers a say," said Jack Dromey, a TGWU national official.
"Boardrooms must be held to account but no good employer should fear the verdict of their workers. Shareholders invest their money but our members invest their lives. Working people should have the right to vote."
Figures released last week by Income Data Services showed that the average total earnings for leading executives of FTSE 100 firms rose by nearly a quarter last year. In April, a survey by the Chartered Institute of Personnel and Development also found that executive pay had risen three times more quickly than average earnings during 2002.
Recent plans floated by the Department of Trade and Industry to curb such excesses include cutting the length of company director contracts from a year to six months and inserting performance criteria into executives' contracts.
But CBI chief Digby Jones said that shareholder activism, not legislation, was the way forward. “Regulation is not best placed to deal with complex contractual issues because its focus is on the rules, not the spirit of the wording," he said. "It would be totally impractical for the law courts to pass judgment on whether a chief executive has failed."