GSK trims chief exec’s bonus after China scandal

GlaxoSmithKline’s board has limited the bonus paid to chief executive Sir Andrew Witty following the major corruption scandal involving the company in China last year.

However the size of this penalty – £245,000 – has been dwarfed by the overall increase in Sir Andrew’s bonus, which doubled in size to £1.9 million.

In July, the Chinese authorities accused the firm of systematically bribing doctors and hospital officials with cash payments. GSK did not challenge any of the allegations, and says it is co-operating with the ongoing probe. The company’s board has commissioned its own third-party investigation of conduct, but the long-term damage to its reputation is yet to be seen.

There were immediate commercial consequences for the firm in China, which saw its sales in the country slump by 61% in the third quarter, its sales hit by a backlash by doctors and hospitals.

Despite the alleged misconduct directing affecting sales in the most important emerging market, GSK rewarded Witty with a bumper pay rise.

Witty received a pay and shares package of £6.5m, the firm saying this was in recognition of the exceptional number of product approvals and improved productivity the company enjoyed in 2013. There were six major products approved in the US, with return on R&D rising (up 1% to 13%) and turnover rising 1% to £26.5 billion.

But in light of the scandal in China, the company’s remuneration committee decided not to award his maximum possible bonus of £2.12m, trimming £245,000 from this total.

Tom de Swaan, the newly appointed head of GSK’s remuneration committee, wrote in a letter to shareholders: “Both Sir Andrew and the board are mindful of the impact this issue has had on the reputation of the company. As a result, the bonuses awarded for 2013 were lower than they otherwise might have been.”

Witty’s overall salary rose to £1.06m from £1.03m in 2012. He also received benefits of £67,000 and share awards worth £3.5m based on the company’s performance. This raised his annual pay and shares package to £6.5m from £3.9m in 2012. Including his pension, Witty’s total package was £7.2m last year, up from £4.4m in 2012.

GSK is no stranger to major marketing misdemeanours. In 2012 the US government demanded it pay a $3bn fine for marketing violations. The payout was biggest healthcare fraud settlement in US history. GSK subsequently announced a major overhaul of how its frontline sales reps are incentivised, dropping bonuses based on sales in favour of quality targets.

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