The city’s grandees are calling for a pay rise for Britain’s top bosses to help attract and retain the best executives, warning that otherwise London will suffer a talent exodus as companies head overseas.
Despite major shareholder rebellion against massive pay packages, some of the UK’s senior fund managers argue for better remuneration to retain executives, highlighting an emerging division in the City.
They fear a large pay gap between UK and US executives is partly to blame for the spate of companies choosing to list in New York rather than London in recent weeks.
Echoing comments from London Stock Exchange head Julia Hoggett this week, they cite as evidence the growing number of FTSE 100 chief executives who have left or announced departures, with some heading to the US.
The average salary of an S&P 500 head hit $18.3 million in 2021, nearly four times that of a FTSE 100 head at £4.26 million, while the median salary stood at £14 5 million dollars against £3.4 million, according to the High Pay Center think- tank.
Peter Harrison, chief executive of Schroders, the UK’s largest asset manager, told the Financial Times: “That’s a question that society at large needs to answer, which is more important: narrowing the gap between CEO and pay.” of workers or accepting that boards need the freedom to attract the best managing directors to run UK companies for the best long-term results.
However, riots by big shareholders aimed at chief executive pay at consumer goods group Unilever and education firm Pearson over the past two weeks highlight the divide in opinion.
Wealth manager St James’s Place is also facing backlash after shareholder advisers warned against its share bonuses and bonuses.
The riots underscore the power of executive advisers ISS and Glass Lewis, who often urge shareholders to vote against sizable pay.
Legal & General Investment Management, a major passive fund manager and a top 10 shareholder of Pearson and Unilever, was also among the investors who voted against their executive pay.
But other active fund managers have backed the companies’ compensation schemes, arguing that competitive compensation is crucial to the City’s future.
Schroders, a top 10 Pearson shareholder with more than a 5% stake, voted in favor of the company’s payroll report. Rival active fund manager Jupiter also supported Unilever’s remuneration.
Chris Smith, manager of the Jupiter UK Growth fund, said: “We have voted in favor of Unilever’s remuneration report and disagree with ISS and Glass Lewis’ recommendation to shareholders to vote against.”
He added that it was becoming “difficult” to “attract and retain the best CEOs and CFOs when US companies are paid so much more.”
John Ions, chief executive of Liontrust, said the US has a culture “where if you do a good job and deliver good results to shareholders, you get rewarded” while in the UK “there is criticism of it”.
He said: “If [pay is] in line with the company goals, there shouldn’t be any problems. We must not be afraid to reward success”.
Sir Douglas Flint, chairman of Abrdn, added: “There is no doubt that one of the factors making the UK less competitive as a market for quotations and talent is its current complexity and restrictions on remuneration policy, compared to other regions geographic”.
So far this year, 15 FTSE 100 chief executives have announced they will be leaving their roles, according to investment firm AJ Bell, above the average of 13 over the past 20 years.
LSE’s Hoggett said UK executives should be paid more this week to help contain the flurry of companies leaving the City.
InterContinental Hotels Group boss Keith Barr also said he would leave in June to return to the US, after warning that the UK is “not a very attractive place” for listed companies.
Cambridge-based chip maker Arm and building materials firm CRH are among the companies that in recent months have opted for listing in New York rather than in London.
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