New research reveals a growing pay disparity between UK and US chief executives, which could fuel calls in the City for bigger pay deals for CEOs.

Analysis by ISS, the proxy adviser, shows that median total compensation for CEOs in the S&P 500 rose by 23% from 2018 to 2022, while in the FTSE 100 the equivalent pay lift was 1.1%.

The stark contrast may be explained by variations in the way the indices are constructed from, in the case of the S&P, different sectors and many more companies. However, the figures come after recent calls by senior City figures for a remuneration rethink.

An article written for Harvard Law School governance blog by an ISS team says: “The gap in CEO pay between the S&P 500 and the FTSE 100 companies continues to make headlines. Recent comments made by Julie Hoggett, CEO of London Stock Exchange, regarding the need for commensurate pay levels of CEO pay on both sides of the Atlantic, highlight continued efforts to draw attention to this issue.”

Hoggett’s comments, first reported in May, come as the UK struggles with an ongoing cost-of-living crisis and at a time when public sector unions strike for better pay and conditions amid fraught negotiations with ministers.

Different strokes

According to the ISS’s research, UK and US chief executives are almost in line in some areas. The median S&P 500 CEO salary grew by 15% against FTSE 100 CEOs’ 10%. Annual bonuses saw comparable increases—22% for the S&P 500 and 21% for the FTSE 100.

However, the big difference is in long term incentive schemes. They rocketed 34% for S&P 500 CEOs, while shrinking by 3% at FTSE 100 companies.

Hoggett’s article claimed the country is at a “pivotal moment” with a “broader discussion” required on pay issues.

“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 writes.

“The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it.”
Some observers called her comments “tone deaf”.

City pickers

The pay debate also appears against a backdrop of concern that the City is losing out to other markets—the US and the Far East, for new listings, particularly tech giants. The UK currently has 1,926 listed companies, as of April this year, compared with 2,429 in January 2015, according to Statista.

UK companies have witnessed several notable investor revolts over pay policies during the current AGM season. Unilever, the consumers goods group and one of the City’s most high-profile companies, saw a 58% vote against its remuneration report at its AGM in May this year.

According to the Public Register, maintained by the Investment Association, an investor revolt is a vote of 20% or more at an AGM against a company policy.

For ISS there may be a number of reasons why there is a transatlantic pay differential. It states:

“Many factors may contribute to the growing pay disparity: S&P 500 companies have outperformed their FTSE 100 counterparts both in terms of market (value creation) and revenue growth.

“Median market cap and revenue among S&P 500 companies witnessed 52% and 40% growth, respectively, while among their FTSE 100 brethren, market cap levels remained flat despite a 20% rise in revenue.”

Those observations need some untangling and, to some degree, will rest on different economic conditions in the two countries. There may also be cultural differences in the two markets, though ISS says investor “dissatisfaction” with pay in both jurisdictions has “grown equally”.

Executive pay is an endless source of debate. ISS research may be used to fuel current claims that UK plc is cheap—a claim that has become part of the wider worries about the City’s attractiveness to new listing. But pay may also be part of broader economic issues affecting the UK’s economy, problems that will be much harder to resolve.