The green-eyed Boardroom
Companies looking to the US for their next CEOs are familiar with some of the challenges in luring high-flying executives to the UK and Europe. UK CEOs peering across the pond see their US counterparts earning far more, bolstered by shareholder leniency on remuneration for performance, a soaring US stock market and a strong dollar compared with the weakened pound. And they are jealous.
Complaints that the UK is becoming uncompetitive, with warnings of a talent exodus from Britain as executives head across the Atlantic, has led to FTSE company Boards coming under pressure to increase CEO pay.
According to an analysis by Deloitte, median FTSE 100 CEO total pay increased by 4% in 2023 to £4.5m (based on data from the first 55 companies to publish their 2023 annual reports). However the median pay for S&P 500 CEOs rose 9% to $15.7mn in the year to April 15, 2024. And in 20% of US companies, pay increased in spite of a decline in performance.
While UK companies fret about shareholder revolts when CEO pay gets toppy (defined as approaching £10m), the 10 best-paid US CEOs all made more than $40m last year with barely a whimper from investors.
This transatlantic pay gap has resulted in 16 FTSE 100 companies seeking shareholder approval for new remuneration policies by April 15 this year. Nine of these companies are proposing significant increases and/or more radical pay structures to reward CEOs more in line with US packages.
Mitul Shah, Partner in Deloitte’s Executive Remuneration practice, said: “We are seeing an increase in large, global FTSE 100 companies moving forward with more radical pay proposals this year, both in terms of incentive levels and the structure of pay.
“Many of these companies have a significant US footprint and cite the disparity in pay levels between the UK and US - as well as more stringent remuneration governance standards in the UK - as a challenge when competing for and retaining senior talent in a global marketplace.”
Big CEO pay packages can exacerbate inequality and breed resentment. Occasionally it produces tunnel vision and bad behaviour, as the banking sector discovered in 2008. But as the FT’s Brooke Masters points out, this isn’t just about avarice in the Boardroom.
Holding down CEO pay reduces remuneration throughout an organisation – resulting in ambitious executives leaving to go elsewhere.
For companies wrestling with changes to remuneration policy, the mechanisms of linking pay with not just delivering the goods but also with sustainability and diversity metrics, are all important.
Read more about Deloitte’s analysis here: https://www2.deloitte.com/uk/en/pages/press-releases/articles/companies-seek-investor-support-for-more-competitive-executive-pay-packages.html
For the FT’s Brooke Masters’ on corporate jealousy, read here (subscription required): https://on.ft.com/3QCYF2b
