GlaxoSmithKline and HSBC
Like BP, pharmaceutical firm GlaxoSmithKline offered one-time bonuses to two company officers who were passed over for the CEO position, news reports indicate. In October, the London-based company--which holds its annual meeting May 21--announced that Andrew Witty, former head of GSK’s European pharmaceutical operations, would succeed CEO Jean-Pierre Garnier. The announcement was the culmination of an 18-month-long internal search for someone to fill Garnier’s post when the longtime executive steps down in June. GSK offered the runners-up, David Stout and Chris Viehbacher, “substantial payments” to stay with GSK, the London-based Telegraph newspaper reported. Stout opted to leave, while Viehbacher will remain with the company as head of the U.S. pharmaceutical division, with a promotion to the post of executive director, the London Times noted. According to company records, Viehbacher was given 111,750 depository shares that will vest over the next three years, provided that he remains employed at GSK.

The firm has faced shareholder ire over executive pay before. In 2003, there was 50.7 percent opposition to GSK’s remuneration report over a proposed £22 million ($43.9 million) exit package for Garnier. Another 10 percent of investors abstained from voting on the pay package, bringing the total dissent to 61 percent, the highest vote against a remuneration report at a large U.K. company since the country instituted advisory pay votes in 2003. GSK overhauled its remuneration plan for 2004 after extensive consultation with shareholders and pay consultants.

The ABI spoke out against Garnier’s compensation in 2003, marking the pay policy as a “red-top,” or a designation of serious concern. ABI spokesman Erfan Hussain told R&GW that it is too early to tell whether the organization will issue a warning on GSK this year. It is difficult to forecast the degree of opposition to pay reports before a company's general meeting, as few institutional shareholders and fund managers in Britain publicly announce plans to vote against a particular remuneration report. Only one shareowner, Morley Fund Management, reported to the press its intention to vote against the GSK package in 2003.

According to the Telegraph, other firms that are considering or now conducing chief executive searches with multiple internal candidates include telecom firm BT, defense contractor BAE Systems, and engine maker Rolls-Royce.

Another U.K. company that may face shareholder opposition to a remuneration report this year is financial firm HSBC. At its May 30 meeting, the London bank is proposing pay plan amendments that would give top officers opportunities to earn higher bonuses. In its 2008 meeting notice, the company says that the new plan will make compensation more performance-based, allowing for higher bonuses in times of high performance.

The plan has drawn criticism from some shareholders, including activist fund Knight Vinke Asset Management (KVAM), which owns less than 1 percent of HSBC. The new share plan is the result of a compensation overhaul--initiated in 2007 with the help of pay consultants Mercer Human Resources Consulting--to make executive pay more “competitive,” the company said. KVAM, in comments on the new pay proposal, said the plan still depends too little on shareholder return as a performance measure. KVAM CEO Eric Knight complained in a letter to independent HSBC director Simon Robertson that it appears that some of the independent directors “see shareholders’ concerns over HSBC strategy and corporate governance as little more than a ‘distraction.’” Knight has not confirmed or denied that the fund will vote against the pay package this year.

KVAM led a public campaign against the remuneration report at HSBC last year, urging governance reforms to unlock shareholder value. The remuneration report only had 2.6 percent opposition, with an additional 2.5 percent abstaining last year. If shareholders do not approve the amendments this year, the plan will default to the higher salary and lower bonus opportunities of the original plan adopted in 2005.

Other Contentious Meetings
Other large U.K. companies that may see shareholder protests over executive pay include health care equipment firm Smith & Nephew (May 1) and oil producer Royal Dutch Shell (May 20).

Smith & Nephew is asking for share plan amendments that would boost the maximum salary multiples for executives. The board has authorized an increase from 100 percent of salary for performance-related bonuses in 2007 to 150 percent in 2008, and from 150 percent of salary for performance share plans in 2007 to 225 percent this year. The company has raised performance targets for these share plans, but, as is the case at HSBC, the executives are eligible for larger bonuses.

Also, the remuneration committee has awarded CEO David Illingworth a “recruitment and retention” bonus for the second year in a row. He first received a bonus award in 2006 when he took the post of chief operating officer, and he was named successor to then-CEO Christopher O’Donnell in July 2007. In its meeting notice, the company noted that these options were granted to Illingworth to make up for the fact that his base salary was approximately 33 percent lower than O’Donnell’s.

According to a company report, Royal Dutch Shell is also proposing one-time retention bonuses to top executive directors in advance of the retirement of current CEO Jeroen van der Veer and executive board member Rob Routs. However, the company is asking shareholder permission to distribute the stock-based bonuses to the three remaining executive directors--Linda Cook, Malcolm Brinded, and Peter Voser--before they are given, which differs from the situation at BP and GSK. Under the proposed plan, Cook, Brinded, and Voser would receive options that will vest over the next three years if they remain with the company.