The Advisors' Blog

Last year, ISS reported on the widening transatlantic gap in CEO pay. Comparing CEO pay at large cap companies in the US and UK, an ISS study found that CEO pay levels at S&P 500 companies “markedly outpaced” CEO pay at FTSE 100 companies between 2019 and 2023. This recent HLS Blog from Glass Lewis says that’s concerning to UK asset managers and the UK Investment Association is reviewing its Principles of Remuneration “to ensure that they are supporting a competitive market.” The Investor Relations Society reports, “particularly for the largest UK companies and those with significant US presence or revenues, there are challenges in attracting US executives and competing in the US market.”

The UK may start to follow a US approach:

– There is a need for more flexibility to offer higher LTIP awards to create a competitive remuneration structure.

– Global companies wish to operate hybrid schemes (with both performance and restricted shares), which are used in the US and other jurisdictions, again for competitiveness reasons.

Glass Lewis says that there’s at least some reception to this shift across the pond:

– Among FTSE 350 companies that held a policy vote this year, one in ten have proposed a U.S. style ‘hybrid’ incentive plan where a portion of the awards vest solely on time served, and three in ten have proposed to increase the total opportunity under one or both incentive plans.

– A wide range in voting support on these proposals (ranging from 56.8% to 99.9%), indicates that shareholders are open to considering higher bonus opportunity or retention-focused awards, but will oppose proposals absent a compelling rationale.

The shift is intended to allow pay packages at UK companies to be competitive with those executives could make at a US-based company, but of course it could impact the market and pay for CEOs in the US as well.

– Meredith Ervine