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

When Gavin Patterson moved to become a senior executive at San Francisco-based tech company Salesforce in 2019 after a sometimes-killer few years at the helm of BT, there was a clear upside.

“On a personal level, you make more money in the United States,” he said. “And there’s no public outcry if you’re successful.”

Patterson made the decision that many UK leaders now face – to move jobs, or sometimes businesses, to the US, given the potential for higher valuations and personal rewards.

Returning to London after stepping down in January to pursue a non-executive career, Patterson is also clear the grass isn’t always greener for UK executives.

“Governance in the United States has positive and negative aspects,” he said, reflecting on the threat of class action lawsuits and the more common merging of the roles of chairman and CEO.

Debate over whether the UK is losing its top talent – ​​and falling behind New York as the home of the world’s best companies – has erupted in recent months.

Last week, London Stock Exchange boss Julia Hoggett called for a new look at how executives are paid in the UK — and in particular the role of proxy agencies, which often push shareholders to vote against salary awards. His words echoed the concerns of many FTSE chairmen over the constraints they see on paying competitive salaries to their senior executives.

The shareholders recently rejected compensation offers at Unilever, one of the UK’s biggest companies, and more uprisings are expected as executive pay comes under scrutiny during a wider cost of living crisis. Activists and politicians have also called for restrictions on executive pay as the rift widens between the C-suite and lower-level employees.

Laxman Narasimhan is among recent examples of executives who transformed their heritage by moving from the UK to the US. He earned the equivalent of $7.5 million in his final full year as chief executive of British home goods group Reckitt Benckiser, but negotiated a package potentially worth $17.5 million a year to run US coffee chain Starbucks, even ignoring one-time incentives that bumped the figure up to $28 million.

In 2019, Namal Nawana quit as managing director of Smith & Nephew because the British medical device company could not meet his salary demands.

Mark Freebairn, head of board practice at headhunters Odgers Berndtson, said the issue was becoming a crisis for some companies: “There is real anxiety about losing leaders in the United States. United. This happens at the President, CEO, CFO and non-executive levels. »

Median total compensation for senior executives, including salary, bonuses, share awards and option grants, is currently around £26 million at S&P 500 companies, according to Refinitiv data. based on annual reports. For FTSE 100 companies, the median is around half that figure, at £13m.

Looking specifically at the role of chief executive, the median salary was $13.4 million in the US in 2019, compared to $5.5 million in the UK, according to Willis Towers Watson. Base salaries for CEOs were broadly comparable, but American companies offered much higher long-term bonuses and incentives.

Freebairn said salary 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 an obvious issue “when you know someone is doing the same job for five or six more.” He cited the example of a chief executive of a US firm 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 that “bureaucracy and compliance have become excessive” in the UK, saying much of the commentary now required in UK annual reports boils down to box-ticking.

Concern over executive 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. of Publicis, the French advertising group, he noted similar concerns about a brain drain of executives from France.

Nor is hostility to high salaries new, Glocer said. Even in the 1990s, British Gas faced ‘fat cat’ protests under US President Richard Giordano, while EMI struggled to defend the amount it was paying fellow US executive ‘Lucky Jim’ Fifield.

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

“It is not entirely negative that there is this strong measure of persuasion in Europe to contain [high pay] but the balance is often off. . . and the waste of time is enormous.

Comparative figures for senior executive salaries in the US and the UK do not take into account that the US has many much larger companies. A New York-based British executive said: ‘There are more bigger roles here than there.’

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

“So the difference of 2x or more in pay levels. . . is probably a bit exaggerated. Over many years, comparing CEO compensation in the US versus the UK and Europe, I developed a rule of thumb that for companies of comparable size, CEO compensation was around 50% higher. [in the US].”

He noted that this gap had “probably increased recently, as UK wages have remained broadly stable over the years (with some ups and downs) while US wages have continued to increase by 5 at 10% per year.

But he added: “Although CEO compensation has become more of a political issue in the United States, the ‘outrage constraint’ is still weaker.” In the United States, investors’ “pay talk regime” remains advisory, he added, as opposed to binding in the UK.

For some British executives, it is not only the salary but also the culture that attracts the United States. Richard Harpin, founder of former FTSE 250 services group Homeserve, which was bought by Brookfield infrastructure funds this year, said there was no better place to start a business than the Kingdom -United. But Harpin added that there was “no doubt that entrepreneurs were more applauded in America.”

There was a feeling in the United States that investors were more focused on long-term growth, he said. “That’s why we’re seeing a number of companies move a listing from London to a dual one in the US. The UK stock market needs long-term investors and better-valued companies.

For companies, whether or not it makes sense to move will depend more on how much of their business and shareholding they have in the United States than on what they can pay their executives. Patterson said technology companies are undoubtedly better suited to the United States, offering lofty 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] better understand our history,” said Mark Thurston, its chief financial officer. “They understand what we are doing. They didn’t in the UK.

As for the role that executive compensation played in his decision to move, he noted that “no one [in the US] would blink” to the $3.7 million that Endava founding CEO John Cotterell earned last year.

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

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

If an executive decided early in life to pursue a career in banking, they would say, “It’s all about the Benjamins.”