Glaxo May Need to Boost Pay to Lure U.S. CEO Candidatesby
Witty is lowest paid among world's top pharma chief executives
Pfizer CEO Read earned twice as much as Witty last year
GlaxoSmithKline Plc’s board may need to loosen the purse strings to attract a new chief executive officer with U.S. industry experience.
Andrew Witty, who said last month he would step down next March after almost a decade at Glaxo’s helm, earned 6.7 million pounds ($9.6 million) last year -- half of the amount made by Ian Read, chief of U.S. rival Pfizer Inc. His pay trails even that of John Lechleiter, chairman and CEO of smaller drugmaker Eli Lilly & Co.
A look across the pharma industry shows Witty makes the least of any chief executive among the world’s top eight drugmakers. Among European peers, he brings home less than Novartis AG’s Joe Jimenez and Sanofi’s Olivier Brandicourt. A fatter pay check may help the U.K.’s biggest drugmaker attract a candidate from a rival firm -- especially from the U.S. -- with the experience to navigate patent expirations and shareholder unrest.
Glaxo’s board is exploring offering a performance-based bonus of up to nine times base salary in the new chief executive’s first year, according to Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management. Her firm holds almost 1 percent of London-based Glaxo. That incentive would be 50 percent more than the maximum of the performance-based compensation in Witty’s pay package.
A Glaxo spokesman declined to comment.
“What companies say -- and we are sensitive to this -- is that they often do feel the need to compete with U.S. pharmaceuticals, who pay a lot more,” Hamilton Claxton said. “This would be drop in the bucket for some of their pay packages.”
Even in the context of Europe, Witty’s pay is low. Flemming Ornskov of Shire Plc, which makes drugs for rare diseases, earned more last year. Shire boosted Ornskov’s compensation by 422 percent to $21.6 million last July amid concern he might be wooed by a rival company. A spokeswoman for Shire declined to comment.
There is rising discontent in the U.K. over executive pay. Investors opposed pay plans at BP Plc and medical-device maker Smith & Nephew Plc last week, and Shire may face resistance at its annual shareholder meeting on April 28. Shire investors have been urged by Institutional Shareholder Services and Glass Lewis, shareholder advisory firms, to vote against remuneration plans.
During Witty’s tenure, Glaxo returned about 9 percent a year, compared with 13 percent for the Bloomberg Europe pharmaceutical index. Pfizer returned 10 percent annually on average in the period.
To benchmark executive pay, Glaxo’s board compares it with a group of 11 global drugmakers that includes Pfizer, Sanofi, Novartis and Merck & Co., as well as other members of the U.K.’s benchmark FTSE 100 index, such as BP, British American Tobacco Plc and Royal Dutch Shell Plc.
While BP Chief Executive Bob Dudley’s total compensation dwarfed Witty’s last year, increasing 20 percent to $19.6 million, Shell’s CEO Ben van Beurden earned less, taking home $6.2 million.
Glaxo shareholders approved a 2014 board policy allowing the drugmaker to increase the performance-based component of executive directors’ pay to as much as nine times their base salary (up from six times). The board said it would only use that to recruit external candidates.
“It’s a lot of money in the U.K. context,” Hamilton Claxton said.