The changing landscape of executive pay in the UK and the US

Clinton Poore our consultant managing the role
Posting date: 08 August 2023

A recent webinar I attended on the subject of the UK and US executive pay landscape provided some compelling insights into the current trends in C-suite and board level remuneration for publicly listed companies in the FTSE and S&P.

 

In this article, I’ll share some important takeaways that I feel are of use to senior leaders, especially in terms of seeing the differences across the pond and generating talking points and ideas for how your organisation could be doing things.

Current trends in the executive pay landscape

The overarching message is that 2023 is proving to be a year of significant shifts and developments in the landscape of executive pay, particularly concerning ESG integration and remuneration structures.

 

There are a few trends to highlight that are shaping the executive pay landscape across the UK and US, from the evolution of executive compensation to the strategic direction that businesses are taking.



CEO and CFO salary increases: The medium quantum increase for these top-tier roles has been between 4% to 4.5% this year. However, it's crucial to note that one size does not fit all, and the increments are unique to each company's strategy, performance and market position.



UK wage growth: According to recent figures from the Office for National Statistics (ONS), the UK's wage growth has been around 7.2%. This suggests a significant gap, indicating that top-level wages aren't increasing in line with the wider workforce's averages.



Emphasis on ESG: There's a growing trend of incorporating environmental, social and governance (ESG) criteria into company plans, particularly in the UK, with a keen focus on scope 1, 2 and 3 emissions. This shift towards sustainable business practices reflects a maturity in the UK boardrooms’ strategic thinking.



Surprising shift towards salary increase: Contrary to expectations, we’re observing an increase in base salaries as opposed to an increase in long term incentive plans (LTIPs).



Pay vs. performance: A slightly lower incentive payout has been noticed in 2023 compared to the previous year. Interestingly, median pay in the FTSE 100 is approximately half of what similar-sized companies in the S&P 400 offer.

 

In terms of complexity and reward design, UK companies predominantly issue long-term incentives solely in performance shares, measured over a span of three years, followed by a two-year holding period. Meanwhile, US practices exhibit more variation and almost always include a time-vested component.

Key boardroom discussions

Executive remuneration remains a hot topic in boardrooms, with a focus on the perceived excessiveness of executive pay and the ongoing debates about capital markets task force and the inflexibility around quantum. The average variable payout for executives in 2022 was 30% in the UK and 37% in the US.

 

In the UK, contentious issues and challenges seem to be valuations, risk appetite and regulatory support for LTIPs. In the US, the main concern is primarily around valuations.

A closer look at ESG and pay quantum

The UK seems to be leading the way in incorporating ESG considerations into the pay quantum calculation. More than ever, executives are challenged to develop innovative, eco-friendly ESG pathways that contribute to the broader business strategy and strengthen business culture and DE&I

 

ESG considerations have moved to the forefront, not just for regulatory compliance but for societal impact and driving appropriate behaviour. This shift reflects the strength of culture in an organisation, a facet that seems more pronounced in the UK than in the US.

Join the conversation

I’d be interested to hear your perspective. What changes are you seeing in your organisation, and what factors are you incorporating into your pay quantum calculation? Get in touch with me directly to share your insights, discuss these trends and explore how they may impact your business.

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