London, May 19 (Bloomberg) -- GlaxoSmithKline Plc, Europe's largest drugmaker, became the first major British company to have its executive pay plan rejected by shareholders.

Investors, who are demanding salary and severance be linked to stock performance, voted against the company's pay committee report at Glaxo's annual meeting. Investors voted down the report 50.7 percent to 49.3, Glaxo spokesman David Mawdsley said.

This is the first year that U.K. shareholders have a say on executive salaries, although the vote on the pay committee's report is non-binding. Investors, led by the Association of British Insurers, are urging Glaxo to change Chief Executive Officer Jean-Pierre Garnier's severance plan, which would pay him as much as $28 million if he's fired.

``It's not just this company: All these executive pension packages are extravagant,'' said Michael Bateman, a retiree from London who owns ``a couple thousand'' Glaxo shares that have lost 20 percent of their value in the last year. The stock would ``have to go up a lot to make up for what he's paid.''

Chairman Sir Christopher Hogg said Glaxo hired Deloitte & Touche to look at the compensation package of its executives. Also, Glaxo will probably make changes to its board, Hogg said without citing specifics.

``The board takes very seriously the substantial vote against the resolution,'' Hogg said. ``We have very open minds on the outcome of that review and the timing of its implementation.''

Investors, who haven't called for Garnier to be fired, are focusing on Glaxo's severance because it is unusually generous by U.K. standards. They batted down a stock bonus for him last year.

First Rejection

Glaxo is the first British benchmark company to have its pay committee's report voted down. Garnier downplayed the significance of the vote.

``We have heard the shareholders,'' Garnier said in an interview. ``Whether we win or lose, it doesn't matter.''

In November, Glaxo backed down on a plan to increase Garnier's stock option bonus after shareholders complained. Glaxo proposed a package of about $18 million, saying the 55-year-old CEO should be paid similar to his U.S. rivals.

Glaxo needs to pay its executives at rates that are competitive with U.S. rivals to prevent other companies from stealing workers, Garnier and Hogg said.

``This is not about me,'' Garnier said during the two and a half hours of discussion at the meeting. ``I'm very flexible. We're going to lose people because they won't take second best.''

Generic Challengers

The company is under pressure as cheaper generic drugs may soon challenge several of Glaxo's best-selling products. The Brentford, England-based company is struggling to get new medicines out of its own labs.

Glaxo's antibiotic Augmentin, formerly the company's second- best-selling product, lost sales to generic rivals since losing its patent protection last year. Levitra, an impotence drug Glaxo's marketing with Bayer AG, has taken longer than expected to reach the U.S. market.

Garnier would get two years' salary, bonus and benefits valued at about $6.5 million if the company terminates his contract early, a spokesman said. The contract, signed in 1999, expires in October 2007 when Garnier turns 60.

He would also get options on American depositary shares worth about 1 million regular shares, which would be valued at about 13 million pounds based on today's closing price. Glaxo shares fell 69 pence, or 5.2 percent, to 1,251p in London.

Garnier can also end the contract after giving 12 months notice, and would then get credit for three extra years pension contributions, the company's annual report says. Glaxo can terminate the contract on two years notice, and will owe him his lump-sum salary and bonus for the two years within 30 days.

Last Updated: May 19, 2003 18:18 EDT