Should UK company bosses receive higher salaries like their US counterparts?
Concerned about their ability to attract and retain talent and the competitiveness of UK companies, many boards and investors are now increasingly willing to compare CEO pay to their higher-earning peers across the Atlantic. It is a marked shift in approach to this thorny issue, after years of avoiding it.
This is partly driven by the growing foreign footprint in the components of the FTSE 100 index.
More than half of the companies listed on the index are viewed as highly international and generate their revenues from 4 or 5 geographic sectors, according to an analysis conducted by Deloitte Consulting, which reported that a quarter of these companies have a “significant” presence in the United States.
Many of these companies have prominent executives either from or residing in the United States. Some UK companies have also lost CEOs to US companies and other competitors, or lost recruitment races. Similar concerns are echoed on the European continent.
Discussions are particularly intense in innovation-driven sectors that have outperformed the broader index, such as technology and pharmaceuticals. CEO pay at major companies indicates how success is rewarded, which influences founders’ decisions about where to develop growing businesses.
Although Brexit, political dysfunction, the lack of a coherent plan for growth, and a complex tax system represent greater obstacles to the United Kingdom’s competitiveness, some have linked executive pay to Britain’s attractiveness as a market for listing on the stock exchange.
However, Julia Huggett, chief executive of the London Stock Exchange, warned last year of a trend among companies to move to New York.
However, rising CEO pay is not the only reason behind the enviable dynamism of US companies, and there is a serious dilemma for the UK.
High wages in the United States and an overemphasis on stock-based compensation have fueled income inequality and the emergence of a class of the super-rich, harming American democracy. Britain has a great deal of cultural sensitivity to American-style capitalism.
However, concerns about the shift towards the American model being overdone must be balanced with the fact that UK business is part of an American-dominated global capitalism.
British companies are already facing pressure from the pay gap for CEOs and rank-and-file employees. And
The Wage Research Center indicated that the wages of heads of companies listed in the FTSE 100 index will rise by 16% on average during 2022, doubling their wages 118 times compared to the average wages of ordinary British employees. Presidents received an average of £3.91 million in 2022, compared to £530,000 in 2021.
Despite this, British wages remain competitive compared to many major markets, but they lag behind wages in the United States, where heads of companies listed in the Standard & Poor’s 500 index earned $16.7 million on average, which is equivalent to 13.6 million pounds sterling then in 2022. .
No one wants the presidents of a weak company to become billionaires because of a crude, sweeping comparison or arbitrary stock price spikes they had nothing to do with.
But there is an argument for UK boss pay to be set on a case-by-case basis, rather than a one-size-fits-all approach.
When there is a compelling rationale, investors should give boards some flexibility.
The less attractive elements of the American system need not be implemented in their entirety, and pay indicators that focus on the short term and overvalue CEOs should also be avoided.
Companies in cyclical industries such as commodities do not have to be treated in the same way as biotechnology companies, for example. Pay-setting committees should limit excessive pay when companies’ strategies go awry.
When rewarding leadership proficiency, companies need to be mindful of the cost-of-living challenges facing the majority of society.
The benefits of a company’s success need to be shared by all those working in it, not just managers and shareholders, but it is unrealistic for British companies to remain completely insulated from what is happening on the other side of the Atlantic given the global economy.
2024-03-09 22:02:45
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