There was a sharp intake of breath last month when the pharmaceuticals group AstraZeneca cemented chief executive Pascal Soriot’s position as the best-paid FTSE 100 boss with a £17m pay package, up from £15.3m a year earlier. The latest award brings to £137m the amount he has earned since joining in 2012.
While it drew the anger of corporate governance experts, Soriot’s generous payout was just a fraction of the sums his counterparts at the biggest US companies take home. Sundar Pichai of Alphabet, Google’s parent company, stands as the highest-earning boss on the US-based S&P 500, with a $226m pay packet in 2022.
That gulf has fuelled fears over London’s ability to attract and retain global talent, and been used to strengthen boardroom calls to boost executive pay to compete with Wall Street-level salaries.
Concern in the City follows a string of defections in recent years. Top bosses have crossed the Atlantic to go to rival companies, and London-listed companies have departed to US stock exchanges, where deeper pockets and weaker shareholder scrutiny give companies more control over remuneration schemes.
“There has been a drumbeat around this competitiveness issue, anecdotally, for a number of years,” said Andrew Ninian, who speaks on behalf of pension fund managers and other big shareholders as director of stewardship at trade body the Investment Association. “But we’re hearing growing numbers of cases where, actually, companies have struggled to get the right people and to be able to compete for talent.”
One example is medical devices maker Smith & Nephew, which lost chief executive Namal Nawana after 18 months following a row in 2019, in which he demanded higher pay in line with American peers. The company reportedly discussed relocating to the US, where it could more easily bump up his £6m package, but ditched the plan and Nawana resigned.
Three years later, in 2022, the maker of Dettol disinfectant, Reckitt Benckiser, abruptly lost its boss, Laxman Narasimhan, part way through a big turnaround plan. Despite being one of the best paid chief executives in the FTSE 100 – earning £6m in 2021 and £8.4m in 2020 – he jumped ship to lead Seattle-based Starbucks, where he clinched a $28m (£21.7m) package.
These cases have given ammunition to bosses at the London Stock Exchange Group (LSEG), who, in their quest to attract more listed companies, are some of the most vocal advocates for higher pay.
The LSEG’s chief executive, David Schwimmer, whose own pay is reportedly set to rise from £6.25m to £11m pending shareholder approval, last month said the UK needed to take US “standards for compensation” seriously. “If London has an ambition to be a globally leading financial centre and to attract world-class companies, that means it has to attract world-class talent,” he said.
That echoed comments made a year earlier by his colleague Julia Hoggett, who leads the group’s listing arm. She criticised asset managers and proxy advisers, saying they had put the UK at a disadvantage by voting against pay policies that were already “significantly below global benchmarks”, while voting in support of higher compensation packages in other countries, including the US.
She warned that without change, the UK could flounder. “The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it,” Hoggett said.
While Britain’s bosses at the top 100 listed companies were paid an average of £4.4m in 2022, according to the High Pay Centre thinktank, their counterparts at S&P 500 companies were paid three times as much – an average of $16.7m (or £13.1m then), according to the AFL-CIO, the US trade union federation. Translated into dollars, UK pay, when adjusted for purchasing power, was less than a fifth of US pay.
AstraZeneca was the most generous UK-listed company, handing £15.3m to Soriot in 2022, followed by BAE Systems, who granted boss Charles Woodburn a £10.7m package that year.
That pales in comparison not only toPichai’s $226m but also second-place Nikesh Arora, a former Google executive and now boss of the cybersecurity company Palo Alto Networks, who was paid $151m..
Look the other way, towards Europe, and executive pay at London-listed companies appears competitive enough. Median pay for the companies listed on the pan-European Stoxx 600 index, which includes the biggest UK companies, was €3.5m (£2.9m) in 2022, according to research conducted for the Observer by Prof Xavier Baeten at Vlerick Business School in Belgium. Excluding UK firms, European median pay was €3.1m.
There are many factors accounting for the gulf in pay, Baeten says. US companies are generally larger, with bigger revenue pots and profits, than the UK’s listed firms. The UK also has a longer history of giving investors a role in policing pay. Advisory votes on annual pay were first introduced in the UK in 2002, something the US only did eight years later in 2010.
And the UK government went a step further in 2013, giving shareholders a binding vote on executive compensation policies – which outline how bosses will be paid in future – every three years. The US has stopped short of that, leaving British-listed companies more accountable on pay than their transatlantic peers.
And shareholders have been prepared to make their voices heard. There have been rebellions at companies such as Unilever, where last year 60% voted against incoming chief executive Hein Schumacher’s pay package, which included a €1.9m base salary that was a fifth higher than his predecessor’s. Earlier that year, education group Pearson had suffered a 46% revolt over plans to increase maximum bonus payouts from 200% to 300% of executive salaries.
But after consulting with more than 100 of the UK’s largest listed firms, the Investment Association is considering updating its pay guidelines. If they remain sympathetic to the competitiveness argument, it could sway the IA’s 250 members – asset managers who handle more than £8.8tn – to go easy on UK companies and help bridge the gap with stateside rivals.
The guidance, due out this summer, comes too late for the 22 companies on the FTSE 100 that, according to Deloitte, are due to renew their policies this year. But it could give encouragement to others, such as HSBC. The London-headquartered lender plans to take advantage of the UK’s decision to scrap the banker bonus cap, introduced after the 2008 financial crisis, which limited bonuses at twice base salary. HSBC said the move would help “recruit and retain people in competitive markets where many of our international competitors do not have similar restrictions”.
Others urge caution, saying a boost in pay will only exacerbate already worrying inequality in the UK. “There are well-documented links between greater inequality and greater socioeconomic problems,” Luke Hildyard, the director of the High Pay Centre, said. “So there’s a reason to be concerned about this, beyond just finding it objectionable that people who don’t work that much harder, and aren’t that much better, than anybody else are just getting much more money which they don’t need.”
Across the FTSE 100, chief executives were paid 91 times more than the average employee in 2022, according to the High Pay Centre. That compares with the S&P 500, where the gulf was far higher, on average, at 272 times workers’ pay.
There is also the argument that the money spend on paying executives could instead be used to up-skill or fund a more competitive workforce, boosting productivity and overall corporate performance. “You have to ask: is this really going to make such a difference for UK companies?” Hildyard said. “If they’re able to spend £10m or £20m on a new CEO to replace someone who was earning a “mere” £4m a year, it isn’t going to change the sort of economic, social, technological context they’re operating in.”
But for all the noise, the Investment Association says UK companies are unlikely to bridge the gap completely. “It’s very clear that we are not going all the way and you will not see comparable packages between US and UK,” Ninian said. “It would just be a step towards it,” he added.
For the time being, bosses such as Bill Winters – the chief executive of London-headquartered Standard Chartered bank – will prove an anomaly. When asked during a media call whether UK bosses were paid enough to keep them from defecting, he said he was comfortable with his £7.8m package: “I made my choice a long time ago. I’m very happy to be sitting here in the UK. I’m very happy to be paid what I’m paid”.
