Britain’s bosses are in a funk. Last year, one-tenth of the CEOs running FTSE 350 companies stood down, more than double the tally for 2021. Many factors lie behind the malaise. Could relatively paltry pay be one?
Many factors lie behind the malaise. Could relatively paltry pay for those in charge be a big one? At first glance, yes. America’s top earners are vastly better rewarded than those in Britain. Take the extraordinary case of Laxman Narasimhan, who used to run Reckitt Benckiser, a London-listed consumer-goods giant. In that job, in 2021, he got by while earning £4.7m , excluding his bonus. When he decamped last year to become theThat pay gap was not exceptional.
The trouble with Ms Hoggett’s argument, however, is that the City brings in more foreign executives than are attracted to other stock exchanges. Around 45% of Britain’s largest businesses have a boss from overseas, whereas fewer than 10% of those in America are foreign, only 14% in France and 25% in Germany. As for those, like Mr Narasimhan, who leave for big payouts, such cases are vanishingly rare.
It is likelier that American firms are overpaying, and perhaps needlessly. Evidence is patchy linking higher pay fors with better company performance. As You Sow, a shareholder advocacy group which produces an annual ranking of overpaid500 bosses, says the most overcompensated are also those who underperform the index. Alexander Pepper, a professor of management at the London School of Economics, sees something similar in Britain.
America looks more like an outlier, therefore, not a standard-setter. Few markets could anyway hope to keep pace with the large sums on offer on Wall Street, where companies are usually larger, harder to run and more at risk from lawsuits than in Britain. A better comparison, then, is with Europe. Brits do tend to out-earn their continental counterparts: in 2021, averagepay at the biggest companies in France reached the equivalent of $9.5m and in Germany $6.7m.
Investors will probably keep a lid on pay rises. Both Pearson and Unilever have suffered shareholder revolts over remuneration plans this year. And unlike in America, British law requires that shareholders approve pay packages: dissenting votes are thus more common. As British households come under ever more economic strain, any signs of excess by company bosses will also grow harder, politically, to justify. Expect more rebellions, not fewer.
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