GlaxoSmithKline's Chief Executive Jean-Pierre Garnier is to back down on demands for a hugely increased pay package after fierce criticism from shareholders.

Institutional investors have led a revolt against Mr Garnier's proposed $18 million (£11 million) pay deal, which they considered excessive for a chief executive of an underperforming company.

The company's shares have fallen a third since the Frenchman took the helm in April 2000, and are underperforming the rest of the FTSE 100 by 10% so far this year.

The pay demands will now be withdrawn by GSK's board after further discussions this week, but are likely to be eventually revived, most probably when the company's currently weak pipeline starts to show greater promise.

Mr Garnier insisted the increased pay settlement which would make him one of highest paid US executives was necessary to maintain his motivation. In an interview with a Sunday newspaper, he 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".

Hank McKinnell, head of industry leader 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 Anglo-American GSK.

Garnier's proposed pay rise is subject to some performance-related markers, but the demand follows the departure of a string of key R&D executives, and has not impressed investors.

"The departures suggest that it is not a terribly happy place", one leading shareholder told The Guardian. "Given the number of people who have left you might think that an incentive package for others might be considered instead".

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.

pharmafocus@pharmafile.co.uk