Does it pay for British executives to move to the US?

When Gavin Patterson moved to become a top executive at San Francisco-based tech company Salesforce in 2019 after a sometimes bruising few years running BT, there was one clear perk.

“On a personal level, you get to earn more money in the US,” he said. “And there is no public outcry if you are successful.”

Patterson took the decision now facing many UK executives — whether to move jobs, or sometimes businesses, to the US given the potential for higher valuations and personal rewards.

Having returned to London after stepping down in January to pursue a non-executive career, Patterson is also clear the grass is not always greener for British executives.

“Governance in the US has positives and negatives,” he said, reflecting on the threat of class action lawsuits and the more commonplace merging of chair and chief executive roles.

The debate over whether the UK is losing its top talent — and falling further behind New York as the home of the world’s top companies — has flared up in recent months.

Last week, London Stock Exchange boss Julia Hoggett called for a fresh look at how executives are paid in the UK — and in particular the role of proxy agencies, which often urge shareholders to vote down pay awards. Her words echoed concerns from many FTSE chairs about the constraints they see on paying competitive wages to their top executives.

Shareholders recently voted down proposals for pay at Unilever, one of the UK’s largest companies, and more revolts are expected as executive pay is scrutinised during a wider cost of living crisis. Campaigners and politicians have also called for curbs on executive pay as the gulf widens between the C-suite and lower level employees.

Laxman Narasimhan is among the recent examples of executives transforming their wealth by moving from the UK to the US. He earned the equivalent of $7.5mn in his last full year as chief executive of UK-listed household products group Reckitt Benckiser, but negotiated a package potentially worth $17.5mn a year to run US coffee chain Starbucks, even ignoring one-off inducements that took the headline number as high as $28mn. 

In 2019, Namal Nawana quit as chief executive of Smith & Nephew because the UK medical devices company could not meet his pay demands.

Mark Freebairn, head of the board practice at headhunters Odgers Berndtson, said the issue was becoming a crisis for some companies: “There is genuine anxiety about losing executives to the US. It’s happening at chair, CEO, CFO and non exec levels.”

The median total senior executive remuneration, including salary, bonus, stock awards and option awards, is currently about £26mn at companies in the S&P 500, according to Refinitiv data based on annual reports. For FTSE 100 companies, the median is about half that figure, at £13mn.

Looking specifically at the chief executive role, median pay was $13.4mn in the US in 2019, compared with $5.5mn in the UK, according to Willis Towers Watson. CEOs’ base salaries were broadly comparable, but the US companies offered much higher bonuses and long-term incentives.

Freebairn said pay was not the only motivating factor for executives considering a move: “The regulatory environment [in the US] means more time spent running the business and less time ticking boxes.” But earning potential was a clear issue “when you know that someone is doing the same job for five or six more”. He cited an example of a chief executive of a US business taken over by a UK-based rival, who became group CEO in London but was forced to take a pay cut for the promotion.

Patterson agreed the “bureaucracy and compliance has become excessive” in the UK, saying that much of the commentary now required in UK annual reports boiled down to box ticking.

Anxiety about executives’ rewards is not unique to the UK, noted Tom Glocer, who ran London-listed Reuters and then Canadian-controlled Thomson Reuters between 2001 and 2011. As a member of the compensation committee at Publicis, the French advertising group, he noted similar worries about an executive brain drain from France.

Nor is hostility to high pay new, Glocer said. Even in the 1990s, British Gas faced “fat cat” protests under US-born chair Richard Giordano, while EMI struggled to defend how much it paid another US executive “Lucky Jim” Fifield.

It was “clearly wrong” that some US boards were willing to pay $100mn packages to people who were perfectly capable of running companies for less, Glocer said, but he questioned the more parsimonious and time-consuming approach across the Atlantic.

“It’s not all negative that there’s this heavy measure of suasion in Europe to contain [high pay] but the balance is often off . . . and the time waste is enormous.”

Comparative pay figures for senior executives in the US and UK do miss the fact that the US has many far larger companies. One New York-based British executive said: “There are more, bigger roles here than there.”

Tom Gosling, executive fellow at the London Business School, said the average size of companies worth more than $10bn in the US was higher than the comparable cohort in the UK given its megacap tech stocks.

“So the 2x or more difference in pay levels . . . is probably a bit overstated. Over many years comparing CEO pay in the US versus the UK and Europe, I developed a rule of thumb that for comparably sized companies, CEO pay was about 50 per cent higher [in the US].”

He noted that this gap had “probably gone up recently, as UK pay has been broadly flat over the years (with some ups and downs) whereas US pay has continued to rise at 5 to 10 per cent a year”.

But he added: “Although CEO pay has become more of a political issue in the US, the ‘outrage constraint’ is still lower.” In the US, the investor “say-on-pay regime” remains advisory, he added, as opposed to binding in the UK.

For some British executives, it is not just the pay but also the culture that is attractive in the US. Richard Harpin, founder of former FTSE 250 services group Homeserve, which was bought this year by Brookfield’s infrastructure funds, said there was no better place to start a business than the UK. But Harpin added there was “no doubt that entrepreneurs were more applauded in America”.

There was a sense in the US that investors were more focused on long-term growth, he said. “This is why we are seeing a number of businesses move a London listing to a dual to just the US. The UK stock market needs long-term investors and businesses that are better valued.”

For companies, whether or not it makes sense to move will depend more on how much of their business and shareholder base is in the US than what they can pay their executives. Patterson said tech-based companies were undoubtedly better suited to the US, offering high valuations, and stronger analyst and investor coverage.

That view was echoed by Endava, an IT services company that moved its listing from London to New York five years ago. “We thought [US investors] would understand our story better,” said Mark Thurston, its chief financial officer. “They understand what we do. They didn’t in the UK.” 

As for the role executive pay played in its decision to move, he noted that “nobody [in the US] would blink an eye” at the $3.7mn John Cotterell, Endava’s founder CEO, earned last year.

“I think there is more sensitivity in the UK but would it drive decisions about [whether] you want to work for a US listed company? I don’t know,” Thurston said. In Endava’s case, at least, “Comp didn’t come into it at all.”

Pay may be a larger factor in other industries, according to Glocer, who also sits on Morgan Stanley’s board and pointed to banks as “probably the worst case”. 

If an executive has decided early in life on a career in banking, he said, “It’s all about the Benjamins.”

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