What’s the Story?

Last month, new ISS figures reported by the FT show median CEO pay for S&P 500 companies rose by 12%, the fastest growth rate for at least 14 years.

Meantime the median pay for CEOs of the UK’s biggest listed groups flat lined, rising only some 0.5% over the last 12 months says the FT reporting recent figures from Willis Towers Watson.

While mega-pay deals, such as the recently approved Elon Musk $56 billion, grab the headlines all these CEO figures are the average, the median or middle occurring number in the data.

Some in the USA are concerned, such as the compensation committee chair of Exxon, William George, who believes that executive pay “has gotten out of control“ and that he was “disappointed” by institutional investors such as Blackrock and Vanguard who regularly vote in favour of large US pay packages.

Figures from Diligent, a data provider, show both those firms typically support at least 90% of pay packages for US companies each year. Indeed, Sullivan & Cromwell, the law firm, reports that only one percent of S&P 500 companies failed their pay votes this year.

Why Does it Matter?

The median US CEO package is already much higher than the median UK CEO figure. The US UK pay gap is therefore already real and large. While the average US company is bigger than the average UK one, the pay difference is far bigger still than the typical size adjustment that would conventionally apply to a top pay package.

Now we also see a big difference in the rate of pay rise, which means that the US UK top pay gap is widening once again, and at a faster rate. Is now the time to ask, “when does a pay-gap become a chasm?”

The UK Big Tent debate on top pay kicked off by the CEO of the London Stock Exchange last year, remains unfinished.

CMIT, the Capital Markets Industry Taskforce issued an open letter on 22 November 2023 calling for “a recast governance and stewardship regime in the UK that contributes to the international competitiveness of companies listed in our markets…”. Many of their remarks relate to top pay.

The IA Principles of Remuneration for 2024 remains in the wings; with half of 2024 now expired.

The UK response on top pay competitiveness needs to steer a clear path, and soon. A tepid response will not be sufficient to address the strong market forces at play.

Newspoint view

Both the US and the UK CEO figures are indicative of the top pay structure overall within the company. And so, the number of executives affected by a US UK pay gap for their role is very considerable. 

Often institutional investors routinely approve high pay in the USA but are sharply critical of top pay in Europe and the UK. For firms that should understand market forces, their difference in view between pay markets is hard to fathom. They must assume local talent is “locked” into a regional geography, which is a hugely unsafe assumption to make for top talent.

Yes, a move across the Atlantic is not undertaken lightly, but the gap in pay will increasing lure the self-confident and highly skilled. And a jump back to return home against the pay-tide will often make no sense. Once lost, gone forever.

As top pay moves ahead sharply in the USA; but on a damped basis in the UK and Europe, large swathes of UK and European top talent become available for hire by large US companies.

Worse, the pay gap is markedly stronger when difference in taxation are overlaid on the pre-tax earnings amounts. No one is saying UK and European executives are poor, they are not. But nor is it sensible to assume they will stay underpaid in a global market when pay elsewhere is very much higher.

Countries can experience overnight capital flight when conditions turn hostile to capital. Talent flight takes longer than that and the impact takes years to see clearly, but the damage is large and takes decades to repair.

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Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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