Assignment
The rise of shareholder power Every single shareholder in a PLC, whether an individual with one share or an institutional investor with tens of thousands of shares, can attend the Annual General Meeting (AGM). It is the opportunity for the owners of the company to challenge those directing the company. In 2003 the government introduced a ruling compelling a vote by shareholders at each AGM on executive remuneration packages proposed by PLCs for their senior executives. Although these votes are, as yet, only ‘advisory', it may be that they have begun to influence company policies on executive remuneration. For example, a new pay deal was arranged for Jean-Pierre Garnier, the chief executive officer (CEO) of GlaxoSmithKline (GSK) in December 2003 after the original deal was humiliatingly defeated at the AGM six months previously. That remuneration package had offered as much as £22m over two years for Mr Garnier should he choose to leave GSK during that two-year period. He would receive this £22m even if the company's share price continued to fall. Institutional shareholders were outraged and voted against the remuneration package, seeing it as ‘reward for failure'. A much warmer welcome has been given by these shareholders to what they see as a more rigorous and more profit-related revised remuneration package submitted six months later in December 2003. This established a ‘low' basic salary of £1m per year, with profit-related incentivized payments for ‘success'. For example, if the share price rises from the current £12.60 to £15 and the company's earnings-per-share growth exceeds current forecasts of 4.9%, then Mr Garner would receive 50% of his potential share options worth around £1.1m. This figure would double to £2.2m if the full 100% of share options were received, but this would only happen if GSK earnings per share rose by 5% on top of the retail price index. Should the same share price rise to £15 be achieved, but with total shareholder return at least half as good as the average for its competitor group (the 15 largest pharmaceutical companies), then Mr Garnier receives a further bonus of £2.1m. Other potential bonuses bring the estimated total remuneration package to just under £6m per annum for his new one-year (rather than two-year) contract.
Question
1 Why have some analysts seen the events in the case study as marking a new beginning in shareholder power?
2 What implications do you think the revised remuneration package might have for GSK's business objectives?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.