GlaxoSmithKline Chief Executive Jean-Pierre Garnier has suffered an embarrassing defeat at the hands of company shareholders in a row over a proposed $18 million (£11 million) pay deal.

Mr Garnier had insisted the huge pay increase was necessary to bring him into line with other top business leaders, but major shareholders have fiercely opposed the deal as the company continues to underperform.

In a recent interview with a Sunday newspaper, Mr Garnier defended his demands saying: "I can't judge on the competitiveness of the package, it is up to the board. If they want us to be competitive, they realise they have to pay competitively vis--vis the other fifteen big pharma companies".

Scathing criticism in newspaper business columns has added weight to a new shift of power towards shareholders, who have now forced GSK Chairman Sir Christopher Hogg to withdraw the proposals after he initially indicated the board would not bow to the pressure.

The very public row has now galvanised critics who say an unapproachable leadership style has stored up problems for Mr Garnier and the company as a whole.

"He doggedly pursues micromanagement. He won let senior executives get on with their jobs. What he has created is an atmosphere which is not a lot of fun", one former executive told the Financial Times. This, in despite of his formidable knowledge of the sector and leadership on the issue of developing world access to medicines, has tarnished the Frenchman image in people's eyes. A former advisor added: "The basic problem is he doesn listen".

Hank McKinnell, head of industry leaders Pfizer and already earning over $20 million, is clearly Mr Garnier's benchmark, but the American company is riding out a stormy year more successfully than its Anglo-American competitor.

GSK shares have fallen since Mr Garnier took the helm in April 2000 and are underperforming the rest of the FTSE 100 by 10% so far this year. A number of early patent expiries added to problems with a weak product pipeline in 2002, and there are few signs of recovery for 2003.

Investor resistance to mammoth pay increases has grown in the post-Enron age, with many US-based chief executives now responding to calls for restraint in economically uncertain times. Meanwhile, pending US legislation aimed at making companies set equity options to accurately reflect their impact on the company's balance sheet will make 'fat cat' pay deals increasingly hard to justify to shareholders.

While there is little suggestion that Mr Garnier's position is no longer tenable, the growing demands of shareholders are making the position of pharmaceutical chief executives increasingly vulnerable.

November saw no fewer that four top executives step down as companies prepared for sweeping mergers, acquisitions and major restructuring to stay competitive.

Rolf Stahel was forced to stand down as Chief Executive of Shire after reports of a widening rift with US non-executive directors and shareholders.

Mr Stahel was credited with transforming the company's fortunes over his eight years at the helm, taking a company with an annual turnover of $3 million into an $878 million sales middleweight by 2001, but a dramatic drop in share price has now prompted his departure.

Schering-Plough's Richard Kogan, who steps down as Chief Executive and President next April, has indicated the recent approval of cholesterol drug Zetia (see p7) was his last major task as leader, but some analysts believe his departure was brought forward by shareholder pressure for new thinking at the top.

Investors hope his successor, Richard J de Osbourne, will be able to lift the company after an increasing R&D budget, near static sales and the OTC switch of Claritin, its biggest-selling drug, saw the company's profits slashed by a third in the third quarter of 2002.

Wyeth finds itself in a similar position with falling sales of it HRT product Prempro in the US, and has now announced that current Chief Executive Robert Essner will also take on the role of Chairman, currently held by John Stafford.

Meanwhile, the departure of Bayer's head of pharmaceuticals, Frank Morich, signalled the company's willingness to be acquired by a rival with rumours resurfacing that GSK was considering the purchase to bolster its prospects.

But less than one year on from its last merger, GSK's management will probably wait patiently for an upturn in their product pipeline rather than risking another acquisition and further investor disapproval.

pharmafocus@pharmafile.co.uk