GlaxoSmithKline has unveiled a new pay deal for its top executives linking remuneration to the company's stockmarket performance compared to its competitors.

The company's board suffered an embarrassing defeat over executive pay in May 2003, when an unprecedented shareholder revolt blocked plans to give chief executive Jean-Pierre Garnier a £22 million 'golden parachute' deal in the event of him being sacked by the company.

The episode was a landmark victory for opponents of 'fat cat' pay deals, and spurred the UK government to draft best practice guidelines to discourage so-called 'payment for failure.'

Stung by sustained criticism from unions, and in particular powerful shareholders the Association of British Insurers (ABI) and National Association of Pension Funds (NAPF), GSK has produced a plan which it says ensures a strong link between pay and performance, but also aligns it with its competitors.

"This has been a rigorous process. In developing our new policy we have listened carefully to the views of our major shareholders," said company chairman Sir Christopher Hogg. "The new remuneration arrangements are closely aligned with UK shareholder best-practice guidelines whilst at the same time allowing GSK to secure, retain and motivate key talent in the globally competitive market place in which we operate.

A comprehensive independent review of GSK's remuneration policy, including its competitiveness was carried out by Deloitte & Touche, with the company consulting the ABI and NAPF before finalising the plans.

Mr Garnier's basic salary will remain at its current $1.5 million, but cash bonuses could see this doubled. Additional shares and share options will be linked to performance targets comparing growth in earning per share and total shareholder return (a measure of dividend and shareholder return), which will also be benchmarked against competitors.

Sir Christopher concluded: "As well as reducing executive director notice periods without compensation, we have introduced tougher performance conditions which clearly correlate pay with the delivery of strong performance and superior returns compared with our peer group. No other pharmaceutical company had adopted such demanding performance criteria.

"The new policy is clear and unambiguous and will be operated consistently. We firmly believe it is in the interests of the company and its shareholders."

Reaction from leading shareholders has been mixed, however, with many looking for greater detail from GSK before declaring themselves happy with the new package.

Peter Montagnon, head of investments at the ABI told the Financial Times: "Performance hurdles must be set in such a way that there is a proper link between performance and reward. We do not believe there should be compensation for a reduction in Garnier's contract from two years to one."

Meanwhile, the company announced a number of changes to its board and committees. GSK's head of R&D Dr Tachi Yamada is to become an executive director in the New Year while Sir Ian Prosser will transfer from its nominations committee to sit as the senior independent non-executive director.

Mr Garnier has been pushing for an improved remuneration package for well over 12 months but will now have to deliver on his recent promise that 'something quite extraordinary' will happen when the company's long-awaited upturn in R&D productivity is expected to kick in.

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