So-called ‘golden parachutes’ i.e. large pay-offs even when top executives fail, have become a main focus this year in the debate over executive pay. The Corporate Library, an organization set up to protect the rights of shareholders in American, believes that the average departing CEO in that country receives a severance package worth $16.5million.
In May this year, shareholders at the annual general meeting of GlaxoSmithKline (GSK) protested against the amount promised to its boss, Jean-Pierre Garnier, if he were forced to leave the company prematurely. Since one of the more likely reason for such a departure would be poor performance, the $35.7million farewell gift was seen to be executive.
Under new rules allowing shareholders to vote each year on British firms’ plans relates to executive compensation GSK’s owners gave it the thumbs down, which sent a shock through corporate Britain. Yet it did not actually change Mr.Garnier‘s package. The decision is only advisory.
Sir Chairman Hogg, the chairman of GSK, points out that the company was already undertaking a review of its remuneration policy. That review is still going on and sir Chairman says whatever the result, “We will be seeking shareholders’ endorsement at the AGM in 2004.” He has written to the Association of British Insurers to say that “the board has registered shareholders’ particular sensitivity to payments on termination.”
British union leaders want shareholders’ vote on executive pay to be made binding. And they want shareholders to register more concern about this issue. Despite all that fuss made over Mr.Garnier’ GSK remains the only company in Britain this year whose financial report failed to meet with its shareholders’ approval.