A major UK company that handles pensions and insurance has expressed interest in supporting American-style large bonuses for companies listed in London, despite concerns that high executive pay is contributing to inequality and promoting risky behavior in the short term.
Legal & General Investment Management has updated its pay policy to say there is room for the “necessary flexibility” needed to attract the best talent. It acknowledges “an increased push” by UK companies towards “remunerations structures that are more closely aligned to US-style pay”.
The method may be significant for businesses with leaders based in the US, or those vying for top talent in that particular market.
Typically, the top leaders of businesses listed in London are given the opportunity to earn shares through a single incentive plan. These shares are usually distributed over several years, meaning that executives may have already left the company by the time they receive a significant amount.
However, L&G has updated its guidelines on its website over the weekend, as first reported by the Sunday Times. These changes state that it will now endorse bonus plans that are tied to a company’s stock price performance over a specified period of time. This type of structure has led to significantly larger bonuses in the United States.
In 2022, the median salary for CEOs of the top 500 publicly traded companies in America was $14.5 million, as reported by the Wall Street Journal. The highest paid CEO was Stephen Schwarzman from Blackstone, a private equity firm, who earned $253 million. Nine other CEOs, including those from Alphabet, Hertz, Peloton, and Pinterest, received more than $100 million in compensation.
According to a study conducted by Willis Towers Watson, the base salaries for executives in the US, UK, France, and Germany are relatively equal at an average of $1.3m. However, US business leaders can anticipate receiving significantly higher long-term bonuses of $9.5m per year compared to $2.6m in the UK.
There is worry that UK businesses are facing difficulties in hiring highly qualified leaders in the international market due to the fact that desirable candidates can receive significantly higher salaries in the US, as investors there offer a broader range of stock-based incentives.
The stricter regulations demanded by major UK investors are being accused of discouraging companies from going public in London. The London Stock Exchange suffered a loss when Cambridge-based semiconductor company Arm Holdings decided to list for $54.5 billion elsewhere. In the past week, a prominent investor in Pearson urged the FTSE 100 publishing company to move its listing to the United States. In September, Andy Bird resigned as CEO of Pearson following ongoing conflicts over his salary between the company and its investors.
In 2019, Namal Nawana, a highly successful leader, resigned from his role as CEO of Smith & Nephew, a medical technology company, after only 18 months due to a disagreement over compensation. The potential salary of $6 million (£4.7 million) he could have earned if all goals were achieved was over $2 million less than what he made at his previous position with US-based diagnostics company Alere.
However, UK companies are competing successfully for European talent. The FTSE 100 retailer JD Sports was able to hire France’s Régis Schultz, a former boss of Monoprix, while its fellow retail group Kingfisher, the owner of B&Q, attracted another French national, the former Carrefour executive Thierry Garnier.
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L&G says it will back US-style schemes if a company can provide “acceptable justification” on how such a pay structure is aligned to its “strategy and business cycles” and meets other criteria such as whether the renumeration packages are “fair and appropriate” in the light of the entire workforce’s pay.
According to a study conducted by the High Pay Centre thinktank, the median salary for FTSE 100 chief executives was 80 times higher than that of a regular employee.
Luke Hildyard, director of the High Pay Centre, stated that our economy must become more equitable, with companies offering numerous well-compensated positions to all employees, rather than a select few highly-paid positions for those in leadership roles.
Paul Nowak, the general secretary of the Trades Union Congress, stated that employees should receive a more equitable portion of the profits they generate. He also expressed concern that many companies prioritize providing luxurious benefits for top executives over adequately compensating their entire workforce.
Source: theguardian.com
