British CEOs don’t exactly have a raw deal when it comes to pay—the average FTSE 100 boss earned £3.8 million ($4.75 million) last year, excluding pensions.
Compared with their American peers, however, that’s small change, with average S&P 500 remuneration hitting $16.7 million the year previously.
The discrepancy applies even for similar businesses in the same sector. A prominent example is at Exxon Mobil, where CEO Darren Woods’s $37 million salary last year was almost four times higher than that of Shell chief Wael Sawan, despite both oil and gas companies bringing in similar revenues.
Now some are starting to make noises about bridging the gap, by bringing British CEO pay up to U.S. levels, with a major investor at U.K. pharma group AstraZeneca saying the company’s CEO Pascal Soriot was “massively underpaid” with his £16.9 million ($21.5 million) package compared to U.S. peers, batting off criticism from shareholder groups over a prospective pay rise.
Proponents of higher executive remuneration in the U.K. argue that it is a means of retaining the best talent at the country’s leading companies, thereby helping to stimulate the economy.
The CEO of the London Stock Exchange, Julia Hoggett, is one such cheerleader for stronger remuneration. She has watched helplessly as a wave of promising British firms quit the LSE by delisting or moving to other exchanges in the U.S. and Europe.
Hoggett thinks some of the answer to stopping this exodus lies in more handsome compensation packages for bosses. “We’ve hamstrung ourselves from creating a level playing field with which to compete with the rest of the world,” Hoggett said.
“We’ve got to have a conscious understanding of the potential impact that [executive pay] has on the ability to create globally consequential companies.”
A question of timing
Luke Hildyard, director at the U.K.-based think tank High Pay Centre, says Hoggett’s comments are indicative of the times.
That’s because she probably wouldn’t have felt emboldened to make them a few years ago when politicians Jeremy Corbyn and Bernie Sanders were frequently in the press railing against pay inequality and corporate greed, Hildyard says.
“I think businesses and investors were interested in what was driving support for anti-business sentiment and how they could address it,” he told Fortune.
As issues like cost of living pressures have fallen somewhat into the background of public discourse, boards have also felt emboldened to offer up increasingly generous compensation packages to their executives.
But wary shareholders aren’t prepared to take a fresh push for higher CEO pay lying down.
Investors strike back
Last year, 60% of Unilever investors voted to reject the compensation package of incoming CEO Hein Schumacher, which would have seen him earn 20% more than his predecessor Alan Jope. It marked a rare rejection of a FTSE 100 executive pay recommendation in the 21st century.
The vote had its intended effect. In this year’s compensation report, Unilever said it had consulted with stakeholders before freezing Schumacher’s base pay and offering him more performance-based rewards.
It wasn’t an outlier. The trend of challenging generous packages has been catching on with investors on both sides of the Atlantic.
Boeing, Stellantis, AstraZeneca, Dollar General, and Universal Music Group are just a handful of companies where CEO pay proposals have hit shareholder opposition. Bosses at those five companies have in recent months been forced to defend a combined $253 million in compensation.
Hildyard points out that beyond any issues of fairness, increasing CEO pay ultimately takes resources away from other areas of the company, such as spending on investment and R&D, leaving returns-focused shareholders reluctant to roll over.
Sarah Anderson, director of the Global Economy Project at the U.S.-based Institute for Policy Studies, says that while U.K. bosses are trying to push their salaries up to U.S. levels, investors across the water are trying to pull American CEO salaries closer to Britain’s.
“I do think that these votes are a reflection of growing public outrage over overpaid CEOs in general,” Anderson said.
“It’s all based on what I see as a really outdated notion that the guy in the corner office is almost single-handedly responsible for company value, and I think people just aren’t buying that anymore.”
Hildyard agrees that a CEO’s impact is often exaggerated, given the number of advisers that report to them and guide their decisions.
For SOC Investment Group, one of the shareholder advisory groups fighting back against executive pay inflation, the people reporting to that “guy in the corner office” are front of mind.
Like advisory groups Glass Lewis and ISS in the U.K., SOC has been spearheading resistance to high CEO pay at U.S. shareholder meetings. The company has previously pressured union-fighting Starbucks to improve workers’ rights.
The latest corporate giant in its sights is the $30 billion U.S. retailer Dollar General, whose CEO Todd Vasos received $183 million over a six-year period at the company. A substantial allowance for personal use of a corporate jet was one example of what SOC regarded as excessive compensation.
At the same time, SOC research director Richard Clayton says the company’s treatment of workers is creating a material financial risk for the company.
“I think the main change that we’ve seen is the recognition that when a company isn’t managing its workforce appropriately, that’s creating risks,” Clayton told Fortune. A particular concern is that perceptions of unfairness in how rewards are split can be toxic to employee morale and therefore performance.
“The discussion of executive pay now will, much more frequently than in the past, include some explicit discussion of what’s happening to the workforce altogether,” he says.
European attitudes
From Clayton’s comments, there are signs that U.S. shareholders are taking an increasingly European view on CEO compensation, where executive pay is much closer to the median worker.
It’s a sentiment summed up last year by Nicolai Tangen, CEO of Norway’s $1.6 trillion sovereign wealth fund, who earns less than $1 million per year as a public servant. Tangen described American CEOs commanding paydays of around $20 million as being like “daylight robbery”
Indeed, Clayton says the group has learned lessons from Europe in its quest to improve the outcome of workers at giant corporations.
“The practices around executive pay are so different in Europe and the levels are so different, that it’s sort of clear evidence that you don’t actually need to be paying executives this kind of money to have a company that runs,” he said.
However, as most U.K. CEOs succeed in winning their higher pay packages—albeit with slimmer majorities than before—it looks like they will be more likely to adopt more practices from the U.S. than vice versa.
The High Pay Centre’s Hildyard says he thinks it’s likely that CEO pay in the U.K. will increase from its current level of between 100 and 120 times that of the median worker, even if they don’t get to American levels.
“If that leaps up, as I think it might well do over the next couple of years, and we don’t see an improvement in the U.K. economy more widely—if it turns out that higher CEO pay isn’t this miraculous cure for the U.K.’s economic malaise—then I think people will be quite angry about that,” Hildyard said.
Boards and investors may decide that a public or employer backlash is worth the risk, but whatever they choose to do with their pay policies, they can surely expect continued scrutiny.
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