Do FTSE 100 bosses need more money?
On the 3rd May, the chief of the London Stock Exchange Julia Hoggett penned an article that was frank in its message: London-listed firms need to pay bosses more to attract the best talent.
Hoggett has made the argument before. Speaking at a fintech conference last year she said the City needed to have a “grown up conversation” on pay “to make sure that we can reward the best people” – but her comments this time round have sparked a debate in City circles.
And just as the article went live, as if to illustrate the depths of the divide on the topic, shareholders at FTSE100 Marmite-maker Unilever revolted and rejected the paypacket of its top bosses.
The two events could signal a looming culture war in the Square Mile as grandees try to carve out a new place for London in the global financial system post-Brexit.
A new review, sponsored by the Hoggett-headed Capital Markets Industry Taskforce, launched last week, will among other things look to reset the narrative on executive pay, arguing that bumper paypackets are a necessary part of attracting the best business leaders.
Speaking with reporters yesterday, Hoggett doubled down on the move but conceded it “was a difficult topic”. She argued the new push is simply about “having the full conversation” and considering the many arguments in favour and against.
An insider told City A.M. that Hoggett’s article on 3rd May had indeed been timed to deliberately kick-off the conversation ahead of the new review.
City minister Andrew Griffith too lent into the debate last Tuesday, telling a conference that “remuneration here needs to be competitive” and “the last thing we want to do is to drive [the best talent] away.”
The argument has weight when London is looked at alongside the US. A report from Equilar and Deloitte last month found that the median pay package, including salary, bonus and stocks for S&P 500 firm chiefs surged 34 per cent since 2015 to the end of 2021, while London’s FTSE 100 CEOs have taken a pay cut of 13 per cent.
The typical S&P 500 boss made $14.5m in total pay in 2021 compared to about $4.5m for FTSE 100 chiefs, according to the report, which analysed the latest full set of annual numbers from the biggest firms on both sides of the Atlantic.
However, others say that comparisons with the US are misguided. Neville White, head of responsible investment policy & research at EdenTree claims that the UK is still ahead of other competitor nations.
“UK executive pay is high in comparison to European peers and is certainly much more competitive than pay rates in Asia,” he tells City A.M. UK companies have comfortably outstripped their European peers over the past decade – a 2019 study found that UK firms paid executives a sixth more than the median pay in Europe.
But even if pay here is higher than in Europe, it doesn’t solve the problem of talent and firms heading to the US. Einar Lindh, a director at PwC, tells City A.M. that Europe and the UK are both “getting left well behind” and losing out to the US.
“It can be challenging for UK and European companies recruiting from the US to offer a competitive package to attract potential candidates given the shareholder environment in which they operate,” he says.
Much of Hoggett’s criticism also pointed to a quirk in the governance of listed firms where corporate policy is directed by influential proxy advisers who guide shareholders’ voting intentions.
In the case of Unilever’s recent rebellion, top shareholder adviser Glass Lewis told shareholders to reject the proposed payout. The same group has advised shareholders to reject the paypackets of bosses at Barclays and Rolls-Royce, while top shareholder advisory group ISS recommended shareholders oppose Ocado’s executive pay report.
Higher chance of an investor backlash, often triggered by proxy groups, was cited as one of the key points restricting UK executive pay by Equilar and Deloitte. Hoggett argues the same groups have waved through far bigger payouts in the US but rein in their baselines when it comes to the UK.
Outside of battles with proxies lies the issue of the optics of the dispute.
Arguing for a pay hike for wealthy City bosses, while lower-level staff navigate a cost of living crisis, isn’t an easy pitch. The pay difference between those at the top and bottom of London-listed companies is a statistic they all have to report, making the issue even thornier in the UK.
The High Pay centre argues that “very high executive pay is a big part of the cost of living problem” and if “incomes in the UK were shared more evenly, that would significantly raise the living standards of the people hit hardest by the current economic crisis”.
Speaking with reporters yesterday, Hoggett said that even with the optical difficulties, the conversation was worth having for its own right.
“If as a country we decide we want to keep [pay] as it is, that is fine. But we will have done so with the open-eyed awareness of what constraints it places on our companies,” she said.