GlaxoSmithKline : Remuneration report PDF - 541.4KB

Remuneration

In this section

Committee Chair's annual statement	120
Annual report on remuneration	125
2022 Remuneration policy summary	143
2022 Remuneration policy report	144

report Strategic

remuneration and Governance

statements Financial

information Investor

GSK Annual Report 2021 119

Remuneration report

Committee Chair's annual statement

Dear Shareholder,

On behalf of the Remuneration Committee (the Committee), I am pleased to present our Remuneration report for 2021. This includes my annual statement explaining the Committee's work this year, our annual report on remuneration for 2021, our updated 2022 Remuneration policy report explaining the change proposed to align our compensation arrangements for new GSK, and details of how we propose to operate the policy this year.

Review of 2021 IPT outcomes

I would like to set the decisions taken by the Committee over the course of 2021 in context against our overall performance.

Innovation: In terms of innovation, we made significant progress in 2021 in further strengthening our R&D biopharma pipeline. It comprises 64 Vaccines and Specialty Medicines, with exciting new developments in HIV and COVID-19 solutions.

Performance: Overall, 2021 was a year of strong sales performance and strategic progress for GSK. We saw Group sales growth of 5% CER driven by growth across Pharmaceuticals, Vaccines and Consumer Healthcare (excluding brands divested/under review). Total earnings declined by 9% CER reflecting the profit on disposal of the Horlicks business in 2020. However, we achieved Adjusted EPS growth (including COVID-19 solutions) of 9% (CER) ahead of updated guidance. The pipeline for 2022 remains robust, with continued progress in pharma and vaccines.

Trust: The company continues to build its ESG leadership position and during the year was ranked first again in the Access to Medicines Index for the eighth time in a row. GSK was also first in the pharmaceutical industry group of the Dow Jones Sustainability Index, received gold recognition in S&P's Sustainability Yearbook and an A- in CDP Climate Change.

2021 remuneration outcomes

This performance delivery resulted in higher total remuneration in respect of 2021 for Emma Walmsley our CEO, Dr Hal Barron our CSO, and Iain Mackay our CFO than in 2020. This was due to an increase in variable performance related pay from the annual bonus through achievement of the adjusted Group PBIT financial measure. In addition, the CFO's remuneration increase also reflected the vesting of his first PSP award since joining the company in 2019.

The key decisions made by the Committee were as follows:

• Bonus - The outcomes for the CEO, CFO and CSO were each determined by reference to performance against the agreed financial measure of adjusted Group PBIT, and the Committee's assessment of their individual performance. Financial performance resulted in a bonus payment at 104% of the financial target. The Committee's assessment of each Executive's performance against the personal objectives set for them at the start of the year is set out on page 129. The Committee believes the bonus outcomes appropriately reflect the overall underlying performance achieved in 2021. Full details are provided on page 128.

• Vesting of LTI awards - Only 58% of the 2019 Performance Share Plan (PSP) award vested. The pre-agreed measures for this award were: R&D new product performance; adjusted free cash flow; and relative TSR, each of which was equally weighted. Performance was measured over the three years to 31 December 2021. 74% of the R&D new product measure vested. This reflected delivery in strengthening the pipeline and the successful commercialisation of newly launched products. The continued strong focus on cash management and generation resulted in full delivery of the adjusted free cash flow measure. Disappointingly, the company's relative TSR performance over the last three years has again resulted in this part of the award lapsing in full. The vested shares will be deferred for two years. See page 130.
• Base salary - Following a review of Executive Directors' performance, the Committee agreed that they should receive an annual increase of 2% for 2021 in line with increases provided to the wider workforce in the UK and US. The Committee also agreed to award Dr Barron an increase of 8% from 1 August 2021 to reflect the creation of One R&D. This new organisation brought together the scientists and governance across Pharmaceuticals and Vaccines to ensure that together they can focus on and invest in what matters across the Group as a whole. (See page 126 for further details).

The 2021 bonus and all awards in relation to 2021 were made in accordance with our Remuneration policy and in determining the outcomes, the Committee carefully considered each Executive Director's performance but did not deem it necessary to exercise discretion or address any anomaly in the performance outcomes. This review included an assessment of performance against all the relevant measures and in the wider context, especially the company's Culture and Trust priority. GSK did not access any COVID-19 Government support or job retention schemes during 2021 or 2020. The dividend policy was maintained during the year and the company delivered its upgraded financial guidance for the year.

GSK's remuneration policy

I would like to set out why the Committee is seeking to update our Remuneration policy at this time.

The past four years have seen a period of significant transformation for GSK, the results of which are becoming evident as we seek to fundamentally address long standing issues and prolonged Total Shareholder Return under- performance. The Committee agreed it was therefore essential to review our Remuneration policy ahead of the usual three-year cycle to define the biopharma business' new approach to remuneration.

120 GSK Annual Report 2021

The policy review has sought to ensure our remuneration arrangements only reward the delivery of our bold new performance ambitions. The key focus of the Investor Update (IU) ambitions over the next five years is to deliver sales growth of more than 5% CAGR and adjusted operating profit growth of more than 10% CAGR from 2021. These ambitions exclude contributions from early stage assets, future business development and COVID-19 solutions. We have significantly changed our performance pay out curves to this end to focus expectations to over delivery. Going forward, achievement of these ambitions should deliver top quartile performance for our sector.

Following a comprehensive review, the Committee concluded that the main policy framework remained fit for purpose. Given that driving long term performance through consistent year on year short term improvement was the main aim, changing the Annual Bonus plan to support and deliver this was determined to be the key imperative.

After careful consideration the Committee concluded that the changes required to the operation of the Annual Bonus were to:

• raise the target performance level to align to delivery at or above the IU ambitions;
• reduce the reward previously available for lower than "on target" performance;
• change the financial bonus measure from adjusted group PBIT to sales growth and adjusted operating profit growth in line with the key IU ambitions;
• strengthen and focus strategic and operational measures for the Executive Directors to a few stretch and personal objectives aligned to quantifiable IU ambitions, reflecting personal areas of accountability. These would also reinforce our culture and Trust priority; and
• given how fundamental ESG is to our DNA and success, it is important to recognise this through a specific performance condition to incentivise incremental year on year improvements against our public ambitions.

We have significantly reduced the pay opportunity for less than "on target" performance. The Committee therefore agreed it was important to incentivise and reward truly exceptional performance, on the occasions it is achieved, to reinforce the step change in performance culture. As a result, one key policy change to the Annual Bonus is proposed.

The current bonus maximum of up to 200% of salary, paid 50% in cash and 50% in shares deferred for three years, will be maintained.

The change we are proposing is an additional opportunity for material outperformance of our IU ambitions of up to a further 100% of salary. This means that the maximum potential annual bonus opportunity will be 300% of salary. However, this additional element could only be achieved if our public ambitions for more than 5% sales growth and more than 10% adjusted operating profit growth were significantly exceeded bringing significant shareholder value.

To support increased alignment with shareholders, we are proposing that any bonus earned in excess of 200% of salary (ie the maximum under the current Remuneration policy) up to 300% of salary (the proposed maximum) would be delivered fully in shares deferred for three years. Half of any bonus earned up to 200% of salary will continue to be deferred into shares for three years. This means that in the event management's performance was such that the IU ambitions were significantly exceeded and the increased maximum bonus was earned, only 100% of base salary would be delivered in cash with the balance being deferred into GSK shares for three years.

In developing the new remuneration policy, we engaged extensively with shareholders to gain their views and feedback for which the Committee is very grateful. As a result of this we made some adjustments to our approach to quantum and clarity of the performance measurement that feature in the final proposed policy. We are pleased that this process has allowed us to develop a remuneration structure that works for both the company and our shareholders as we enter a new phase for the business post demerger.

It is important to note that to achieve the new maximum, annual sales growth and adjusted operating profit growth would each be required to be at least 5 percentage points above their respective targets. It is acknowledged that such performance is not expected to be a frequent occurrence. However, if achieved the Committee believe it should be appropriately rewarded given the additional value that would be delivered to investors, patients and our people.

In the event the Annual Bonus financial measures are not achieved the Committee would consider the appropriateness of the other measures paying out.

In terms of competitiveness, for our CEO, Emma Walmsley, if the maximum opportunity was earned as a result of delivering the exceptional performance required to reach this, her overall compensation package would be in the bottom quartile versus our global pharmaceutical comparator group. This assumes peers in this group only achieve target bonus. This group includes companies listed in the UK and Europe.

Post demerger, as a FTSE 20 company, new GSK will pursue an ambitious growth strategy focused purely on biopharmaceuticals. It will compete for talent in the highly competitive global pharmaceutical and biopharmaceutical sector where remuneration levels can significantly exceed those seen in the UK. The proposed change to Annual Bonus has been designed to strike a pragmatic balance between shareholder expectations for a UK listed business and the commercial imperative and duty that the Committee has to ensure the company can secure and retain the best talent. The additional proposed Annual Bonus opportunity will only be awarded for exceptional outperformance which will underpin delivery of significant growth and shareholder value.

Our remuneration arrangements with the enhanced Annual Bonus opportunity still remain overwhelmingly weighted to delivery of long-term performance. The Committee is therefore confident that this change to the Annual Bonus is in the best long-term interests of the company and our shareholders.

report Strategic

remuneration and Governance

statements Financial

information Investor

GSK Annual Report 2021 121

Remuneration policy implementation for 2022

Annual Bonus and LTI performance measures

We are proposing to implement changes to our Annual Bonus and LTI measures going forward to align them with our IU ambitions and Trust priority. These metrics will give greater linkage between our long- and short-term measures. They also ensure we have a focus on both top line and bottom line growth which are critical to achieving our IU ambitions as well as ensuring we have a sharp focus on our strategic priorities including pipeline, culture and ESG.

For 2022, the:

• Annual Bonus measures will be: annual Total Sales growth (30%); annual Adjusted Operating Profit growth (30%); strategic and operational (30%); ESG - Human Capital Management: Inclusion & Diversity (I&D) (10%).
• LTI measures will be: Relative TSR (30%), Total Sales growth over 3 years (20%); Adjusted Operating Profit growth over 3 years (20%); Pipeline Progress (20%); and ESG: Environment Composite Scorecard (10%).

The Committee will agree a few key stretch strategic and operational objectives for each Executive Director. They will focus particularly on individual areas of accountability to underpin delivery of the fundamentals of our strategy in support our ultimate financial success. For example, the CEO and CSO will each have clear pipeline delivery objectives. Each executive's objectives will also require demonstration of our Culture and Trust priority. The Committee will also ensure that the measures are quantifiable, suitably stretching and align to the delivery of our public ambitions. We will provide disclosure of performance against these objectives to reassure shareholders that they are stretching.

The Corporate Responsibility Committee supported the Committee in the key considerations for the design, development and adoption of an aligned approach to our key ESG commitments fundamental to how we operate. We are introducing a 10% ESG measure initially into both our short and long-term plans, to reward delivery of external ambitions for our Trust priority, specifically in respect of Human Capital Management: I&D and our Nature Net Positive and Climate Net Zero ambitions by 2030.

We chose to focus on an element of Human Capital Management for our first annual bonus ESG measure to reinforce delivery of our public I&D targets. An Access to Medicines measure was considered, however, it was agreed that given our success in this area it would not be a suitably stretching target. Whereas I&D is an important business imperative and suitably stretching targets could be set to warrant additional reward.

Each of the targets set this year are for new GSK, they will not therefore require adjustment following the demerger. The Board and the Committee believe that the proposals represent the right approach to appropriately focus and reward executives to deliver our public ambitions and secure strong performance for all our stakeholders.

Salary

The Committee agreed following a review of performance of Executive Directors that they should receive a 3.0% salary increase for 2022 aligned with that provided to the wider workforce in each of their respective geographies.

Following the company's announcement on 19 January 2022, Dr Hal Barron will transition from CSO to a non-independentNon-Executive Director on 31 July 2022. The Committee determined that given Dr Barron had agreed to remain a Director he should be treated as a good leaver. He will receive his existing salary up to 31 July 2022 and a pro-rated bonus for 2022. He will retain his existing long-term incentive awards which will vest subject to performance and on a pro-rated basis. From 1 August 2022 he will receive fees as a Non-Executive Director and, subject to shareholder approval, £200,000 per annum in respect of the additional responsibilities that he will undertake for GSK and R&D.

Recoupment

Further to the allegations notified to the Group in February 2021 in respect of Dr Moncef Slaoui, a former Executive Director of the company, the Committee exercised its discretion and applied the claw back provisions under the Recoupment Policy in respect of past stock incentives received by Dr Slaoui. In December 2021, Dr Slaoui agreed to return to the Group $3,860,090 in the form of cash under the Recoupment Policy.

Consumer Healthcare Demerger

We are making strong progress towards the separation of the company into new GSK and Haleon, a new listed Consumer Healthcare company in mid-2022. The new Haleon Board will engage with shareholders on the proposed remuneration arrangements for the new company.

AGM

Finally, I would like to take this opportunity to thank shareholders for their input and engagement during this Remuneration policy review, to help shape the new policy presented in this report.

During this consultation we were pleased to be able to engage with approximately 50% of the company's shareholder register. I welcome all shareholders' feedback on this report ahead of our AGM. We look forward to receiving your support for our new Remuneration policy and Annual report on remuneration at our Annual General Meeting on 4 May 2022.

Urs Rohner

Remuneration Committee Chair

28 February 2022

122 GSK Annual Report 2021

2021 at a glance

2021 Total Remuneration

The following shows the composition of total remuneration paid to Executive Directors in office at 31 December 2021, in respect of 2021 and 2020.

Emma Walmsley	Iain Mackay	Dr Hal Barron

report Strategic

£8m		80%
								77%
£6m
									75%
£4m
£2m														40%
						20%		23%
£0m										25%		60%
			2021	2020	2021	2020

US$12m 79%

72%

US$10m

US$8m

US$6m

US$4m
US$2m	21%	28%
US$0m	2021	2020

and Governance

Fixed pay - salary, benefits and pension

Performance pay - annual bonus and LTIs earned in respect of the three year performance period ending 31 December 2021

Pay for performance

remuneration

2021 Annual bonus: financial performance

Maximum

(105% of target)
	104%
Target				[•]%
Threshold
(95% of target)
		Adjusted Group PBIT
Performance achieved
Maximum performance target

2019 LTI outcome: performance period ended 31 December 2021

Overall vesting 58%

Relative	R&D new
TSR	product
0%	24.66%
Vested	33.33%
Adjusted
Lapsed	free cash flow

statements Financial

Executive Directors' shareholdings (audited)

To align the interests of Executive Directors with those of shareholders, they are required to build and maintain significant holdings of shares in GSK over time. Executive Directors are required to continue to satisfy these Share Ownership Requirements (SOR) by holding 100% of their SOR for the first 12 months after leaving GSK and not less than 50% of their SOR for months 13-24 after leaving GSK.

Executive Directors and GLT	SOR % of salary
CEO	650
Other Executive Directors	300
Other GSK Leadership Team members	200

Share ownership vs SOR (multiples of base salary)

Emma Walmsley

6.5x

9.9x

3.0x

Iain Mackay(1)

0.6x

5.7x

Dr Hal Barron

3.0x

8x

10x

0

2x

4x

6x

SOR

31 December 2021 shareholding

1. Appointed with effect from 14 January 2019

information Investor

GSK Annual Report 2021 123