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.
