UK – Shareholders have voted to reject a controversial pay package of the chief executive of drugs company GlaxoSmithKline - the first time a UK blue-chip company has had its pay scheme rejected by shareholders.

At last night’s annual general meeting, they rejected a scheme that included a severance package which reports said was worth up to 30 million euros for chief executive Jean-Pierre Garnier.

The scheme was rejected by a margin of 1,439,003,920 votes to 1,398,142,951. GSK says that it takes the result very seriously although the vote was only “advisory”.

The vote was front-page news in the UK and even led the BBC’s main TV news programme.

The Association of British Insurers said shareholders had given a “clear signal” that they thought Garnier’s severance package was too generous. “The outcome of the vote means that the principles of good practice have been upheld,” it added. ”In particular it shows that shareholders will not tolerate arrangements that have potential to reward executives for failure.”

“The major reason for this negative vote has been the fact that there are elements of our senior level remuneration package which do not accord with what is regarded as best practice by some shareholders,” said GSK chairman Sir Christopher Hogg. He added GSK would consult further with leading shareholders in the coming months on executive pay.

Hogg said GSK has hired Deloitte & Touche to advise on its remuneration policy.

“Like most long term investors, our members think it is entirely acceptable for directors to receive high levels of pay and bonuses so long as this is justified by excellent performance,” said John Saunders, deputy chairman of the Local Authority Pension Fund Forum, which comprises 27 pension funds with over 40 billion pounds in combined assets.

“However, what we find unacceptable are remuneration structures that almost guarantee payments for mediocrity or even failure.

Saunders added: “While it is welcome that the company is undergoing a review of remuneration, it was disappointing that there was no firm commitment to overhaul this weak performance target.”

A survey of 20 UK chief investment officers conducted by Cantos and Mercer Oliver Wyman released today found that shareholder activism, such as that on executive pay, was expected to grow in the near-to-medium term.

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