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UPDATE 2-Smith+Nephew CEO steps down over pay, ex-Roche Diagnostics chief to take over

By Uday Sampath Kumar

* Nawana to step down on Oct. 31

* Diggelmann has been member board member since March 2018

* Shares down over 8% (Adds details on Nawana, Diggelmann, analyst comment, share movement, background)

By Uday Sampath Kumar

Oct 21 (Reuters) - Smith+Nephew Plc Chief Executive Namal Nawana is stepping down after just 17 months in the role after becoming dissatisfied with his salary at the medical device maker.

The company said Nawana, who will be replaced by former Roche Diagnostics head Roland Diggelmann, was leaving to pursue opportunities outside the United Kingdom and his departure was a mutual decision. A spokeswoman gave no additional details.

"There appears to be a pretty simple reason Nawana is leaving – pay," AJ Bell investment director Russ Mould said.

"It became apparent over the summer that the company was looking for ways to increase its head honcho's remuneration with apparent discussions about a move to a U.S. listing to escape an increasing backlash in the UK towards excessive executive pay."

An earlier FT report had said Smith+Nephew directors discussed moving the company's main listing from London to New York, where higher executive payouts are more common and less controversial, to boost its top salaries.

Analysts at Berenberg also said Nawana's pay "aspirations" made his departure inevitable. Nawana, who steps down at the end of the month, did not respond to request for comment on LinkedIn.

Faced with stricter rules in the United Kingdom designed to tackle soaring executive pay, the company is in talks with shareholders over its 2020 remuneration policy.

Nawana, who joined the British maker of artificial knees and hips in May 2018, received total pay of $2.88 million that year, according to the company's last annual report. His predecessor Olivier Bohuon received $5.12 million in 2017.

Smith+Nephew shares, which have risen 40% since Nawana's appointment last year, fell 8.2% on Monday.


PRODUCT DIVISIONS

Nawana had focused on boosting revenue and profitability by realigning the 160-year-old company's operations, concentrating on product divisions rather than geographies.

He was former head of U.S. diagnostics company Alere - where he earned $8.6 mln in 2016 - and overhauled more than half of Smith+Nephew's leadership team. He hired heads for the company's main divisions of sports medicine, orthopaedics and wound management to speed up product development.

Results came quickly as the company reported higher than expected half-year profit and boosted its 2019 revenue forecast in July.

Analysts expect Smith+Nephew's revenue to rise more than 4% this fiscal year, compared with the 0.8% to 3% growth the company has had over the last three years.

Smith+Nephew is looking to Diggelmann, with more than 20 years in the orthopedics and diagnostics sectors, to continue revenue growth by building on Nawana's strategy. He has already had a hand in many decisions having been a board member since March last year.

"We expect (Diggelmann) to pursue a strategy of improving operational execution, something any competitor of Roche Diagnostics would say he did extremely well," Berenberg analyst Tom Jones said.

High executive pay has become a controversial issue in Britain, highlighted by outsized awards such as a $100 million pounds bonus to Jeff Fairburn, chief executive of housebuilder Persimmon. The company said in November he would leave after deciding criticism of the award had become a distraction.

Regulations introduced in January mean listed companies with over 250 employees will have to disclose the ratio of CEO pay to the rest of the company's workforce, in a move the government said would make companies justify the pay of top bosses.

(Reporting by Uday Sampath and Pushkala Aripaka in Bengaluru Editing by Rashmi Aich and David Holmes)