City grandees are calling for an increase in pay for Britain’s top bosses to help lure and retain the best executives, warning London will otherwise suffer an exodus of talent as companies head overseas.
Despite big rebellions by shareholders against chunky pay packets, some of the UK’s senior fund managers support better remuneration to hold on to executives, highlighting an emerging divide in the City.
They fear a big gap in pay between UK and US executives is partly responsible for the flood of companies choosing to list in New York over London in recent weeks.
Echoing comments from London Stock Exchange head Julia Hoggett this week, they cite the rising number of FTSE 100 chief executives that have left or announced departures, with some heading for the US, as evidence.
The average pay of an S&P 500 boss hit $18.3mn in 2021, nearly four times more than that of a FTSE 100 chief at £4.26mn, while median pay stood at $14.5mn versus £3.4mn, according to the High Pay Centre think-tank.
Peter Harrison, chief executive of Schroders, the UK’s largest asset manager, told the Financial Times: “This is a question that broader society needs to answer — which is more important: limiting the gap between CEO and worker pay or accepting that boards need the freedom to attract the best CEOs to run British companies for the best long-term outcomes.”
However, big shareholder revolts aimed at chief executive pay at consumer goods group Unilever and education company Pearson in the past two weeks highlight the divide in opinions.
Wealth manager St James’s Place also faces a backlash after shareholder advisers warned against its bonus and share awards.
The revolts underscore the power of proxy advisers ISS and Glass Lewis, which often urge shareholders to vote against sizeable pay.
Legal & General Investment Management, one of the biggest passive fund managers and a top 10 shareholder in Pearson and Unilever, was also among the investors that voted against their executive remuneration.
But other active fund managers supported the companies’ remuneration plans, arguing that competitive pay is crucial for the future of the City.
Schroders, a top 10 shareholder of Pearson with a stake of more than 5 per cent, voted in favour of the company’s pay report. Rival active fund manager Jupiter also backed Unilever’s remuneration.
Chris Smith, manager of Jupiter UK Growth fund, said: “We voted in favour of the Unilever remuneration report and disagreed with ISS and Glass Lewis’s recommendation for shareholders to vote against.”
He added that it is becoming “difficult” to “attract and retain the very best CEOs and CFOs when US companies are paying significantly more”.
John Ions, chief executive of Liontrust, said the US has a culture “where if you do a good job and deliver for shareholders, you are rewarded” whereas in the UK “there’s criticism towards it”.
He said: “If [pay is] aligned with business goals, there should be no issue. We should not be afraid to reward success.”
Sir Douglas Flint, chair of Abrdn, added: “There is no doubt that one of the factors making the UK less competitive as a market for listings and talent is its current complexity and restrictions on remuneration policy, versus other geographic regions.”
So far this year, 15 FTSE 100 chief executives have announced they are leaving their roles, according to investment company AJ Bell, above the average of 13 over the past 20 years.
The LSE’s Hoggett said this week UK executives should be paid more to help stem the flurry of companies leaving the City.
InterContinental Hotels Group boss Keith Barr also said he will leave in June to return to the US, after warning the UK is “not a very attractive place” for listed companies.
Cambridge-based chipmaker Arm and building materials business CRH are among the companies that have in the past few months opted to list in New York over London.