UK boards and investors push for higher CEO pay to bridge gap with US

More UK boards are raising chief executive pay to rival US peers, marking a shift in sentiment among top bosses, chairs and investors previously reluctant to engage in transatlantic remuneration wars.

The London Stock Exchange Group is among the latest seeking to gain shareholder approval for a pay package for its chief executive David Schwimmer that is benchmarked against US rivals, rather than UK companies.

“When you look at standards for compensation around the world, the US is in a different place,” said Schwimmer this week. “And that is an issue companies competing on a global basis from a base in London need to take into account.”

Frustrations among UK board directors about the constraints on offering internationally competitive pay packages to their top executives have been simmering for years. Falling behind on executive pay can hamper a company’s ability to attract and retain the most talented senior management teams, which some say risks exacerbating the decline in the UK’s capital markets.

Now there are signs executive pay in Europe is at a tipping point, with greater efforts by boards and concessions from shareholders to bridge the divide with the US.

“There’s been a sea change of thinking,” said Peter Harrison, chief executive of FTSE 100 asset manager Schroders. “More and more investors and boards are recognising that if we don’t get executive pay right there will be an impact on the UK’s competitiveness. It’s not just about the listed markets, it’s about creating an environment where founders want to grow their businesses here, and there’s a culture where risk-taking and success is celebrated.”

Already some British companies have lost their chief executive over pay. A notable example from 2019 was Namal Nawana’s decision to quit Smith & Nephew after 18 months because the UK medical devices company could not meet his pay demands. The company has continued to wrangle with shareholders on pay since.