Remuneration committee chairs are more willing to sit on the “naughty step” and accept shareholders’ revolts over executive pay, according to the London Stock Exchange (LSE) executive leading a campaign for substantially higher CEO pay rates.

Julia Hoggett, chief executive of the LSE, was giving the keynote address at London’s City Week 2024 conference when she made the remarks. She was summing up progress on the change agenda pursued by the UK Capital Markets Industry Taskforce (CMIT), a lobby group that Hoggett also chairs.

She said that the campaign for higher pay—in the face of stiff opposition from think tanks, academics and some City grandees—has begun to persuade key City players.

Boards, she added, are now willing to take flak from shareholders when it comes to AGM remuneration votes.

“We have also seen a far greater willingness of remuneration committee chairs to sit on what I call the naughty step—by accepting that some resolutions will gather more than 20% of votes cast against them, thus requiring an explanation from the company under the Corporate Governance Code and inclusion in the IA’s [Investment Association] Public Register.”

Hoggett added that the LSE has started to “see a change in mindset from some very significant asset managers such that a number of companies with significantly enhanced remuneration packages have nevertheless received more than 80% support”.

The public register currently shows that, this AGM season, five companies, including pharma giants AstraZeneca and Smith & Nephew, and construction industry leader Travis Perkins, have suffered revolts against remuneration policies. Five companies have seen revolts against their remuneration reports.

Hoggett and the CMIT have called for an end to the register as part of a “reset” of UK corporate governance to reduce the burden on UK listed companies and improve the “country’s economic growth and its international competitiveness”.

‘Sharply declining’

However, the LSE is thought by many to be struggling. In a recent article, UCL finance professor Rama Kanungo writes: “London Stock Exchange, which can trace its heritage to the coffee houses of the 17th century, is failing. The volume of shares traded is sharply declining and some UK companies are swiftly moving to the US market.”

Kanungo, like others, points out that US markets are lighter touch and provide higher valuations.

CMIT recently suffered an attack from the Local Authority Pension Fund Forum (LAPFF), a body that represents council pensions worth £350bn, questioning the role of CMIT and LSE in City reforms the London listings regime.

Doug McMurdo, chair of the LAPFF, wrote in an open letter: “In lobbying to lower the governance and listing regime, the LSE not only risks loss of its reputation, but also ‘poisoning the well’, making the UK an unfavourable place to allocate capital.”

Hoggett used her speech to counter the bleak view of the LSE. Taking on worries about delisting, low valuations and liquidity in turn, she said London faces competition from other capital markets, the LSE remains the fifth largest stock exchange in the world and has raised double the capital of the next biggest European exchange. She pointed out the US has lost listings too—down from around 7,300 in 1996 to 4,300 today.

On valuations, she said there was evidence some UK companies trade at higher multiples than US counterparts; and when all UK liquidity is taken into account—not just LSE traded liquidity—it is equal to or higher than the US.

“Given how consequential this discussion is for the future of our economy and for the companies listed on, or coming to, our markets and to the investors in our markets, we need to make sure we do not allow erroneous assumptions to become entrenched in how we talk about our capital markets.”