City grandees who recently talked up the need for higher executive pay have been accused of being “tone deaf” by the leader of a UK think tank.
Luke Hildyard, director of the High Pay Centre, made the comments after reports in the press stating that leading City figures believe UK companies are at a competitive disadvantage internationally because of pay levels.
“It’s a little tone deaf for a bunch of multi-millionaires to come and say that the problem with the UK economy is that multi-millionaires aren’t paid enough,” says Hildyard.
“That said, unpopular opinions are sometimes right. The problem with these calls isn’t that they’re unpopular; it’s that they’re wrong.
“Higher CEO pay wouldn’t do anything to help people struggling with rent rises or energy bills, or help them get a GP appointment,” he says.
“The evidence that the UK is losing potential executives to international rivals and that this is harming the UK economy—or even the UK listed market—is really thin.”
After years of commentary that executive pay levels were out of control, a group of individuals, including the head of the London Stock Exchange, Julie Hoggett, have appeared in the press to suggest that pay levels are failing to make UK companies competitive when recruiting top corporate leaders.
Hoggett was recently reported in the Financial Times saying that there needs to be a “broader discussion” about pay, claiming the country is at a “pivotal moment”.
“We should be encouraging and supporting UK companies to compete for talent on a global basis, so we remain an attractive place for companies to base themselves, stay and grow,” Hoggett says in an article on the LSE’s site. “The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it.”
This week, the Financial Times reports that other City leaders are lining up behind Hoggett. The paper cites Peter Harrison, chief executive of asset managers Schroder, saying: “This is a question that broader society needs to answer—which is more important: limiting the gap between CEO and worker pay, or accepting that boards need freedom to attract the best CEOs to run British companies for the best long-term outcomes.”
Remuneration revolts
However, investment managers do not appear united on pay. In recent weeks, investors voted 58% against the remuneration report at consumer goods multinational Unilever. Pearson, the education company, saw a 46% opposition to its remuneration policy. In the City, 20% is considered the threshold for a shareholder revolt against corporate decision making.
Other companies to see sizeable votes against remuneration reports include Topps Tiles, where 41% voted against and Ocado, the grocery delivery giant, which saw 30% in opposition.
A study by Deloitte revealed in April that the median FTSE 100 chief executive saw their pay rise in 2022 by 12%, or from £3.72m to £4.14m last year.
Deloitte pay expert Mitul Shah said: “We are expecting a more challenging 2023 AGM season, as investors closely scrutinise pay out-turns, with a particular focus on potential windfall gains made by executives on the back of incentive awards granted in 2020 during a dip in the market.”
In January, the High Pay Centre calculated that the median FTSE 100 CEO would surpass the annual 2023 earnings of the median full-time worker by 2pm on 5 January. It calculated that median FTSE 100 CEO pay at the time was 103 times that of the median full-time worker.
‘Broken system’
In an article for Board Agenda, London School of Economics professor Sandy Pepper argues: “When it comes to senior executive reward, for too long companies have behaved as if they are in the equivalent of an arms race. It is a broken system—an example of a significant market failure—and it needs to change if inflation in the pay of super-managers is to be brought under control.”
Luke Hildyard argues if the issue driving higher pay is recruitment from a small international pool of talent, then companies should look to their own talent development programme.
“Taking it at face value, my question would be: why is the pool of potential executives so small?” says Hildyard.
“There are hundreds of thousands of business and management graduates in the UK. Our leading companies have multi-billion pound budgets from which to resource their training of future leaders. They each take on dozens if not hundreds of graduates every year.
“If the pool of capable people is so small, I think businesses should be thinking about what they can do to expand it, rather than complaining about the fact that people are understandably uncomfortable with enormous pay gaps.”
Executive pay is a perennial issue, but there is effort under way to counter the prevailing narrative that pay levels have gone too far. Investors still have “excessive pay” on their agendas and a cost-of-living crisis still grips the UK. Whether City grandees are able to talk up a more relaxed approach to pay remains to be seen.