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In recent developments, compensation for UK-based chief executive officers has increased at a faster rate this year than their American counterparts, as British companies strive to narrow the existing pay gap. Data from ISS-Corporate, a division of Institutional Shareholder Services, revealed that the median pay for CEOs at FTSE 100 companies that have reported this year has risen by 11%, reaching $6.5 million. In contrast, US CEO pay has seen a 7.5% hike among 320 S&P 500 companies that have reported up to April 21. Nonetheless, the median pay for US CEOs still surpasses that of the UK significantly, with American CEOs earning over $16 million on average, potentially heading for another record high.
Luke Hildyard, director of the UK-based think tank High Pay Centre, noted that the push by large corporations and the financial sector for higher CEO pay appears to be convincing shareholders. He questioned whether the business and finance sectors in the UK genuinely wish to mirror the US’s extensive economic inequality that is partly driven by its pay culture.
Historically, UK public limited companies (PLCs) have awarded smaller stock bonuses to executives compared to the US, stirring concerns about competitiveness for companies listed in London. To address this, FTSE companies are swiftly approving bonus increases at annual meetings this year.
In the pharmaceutical sector, GSK has proposed a significant potential payout for its CEO, Emma Walmsley. If certain targets are achieved, her annual compensation could increase to $28.6 million, a proposal expected to receive shareholder support at the company’s annual meeting on May 7. In 2024, her reported pay was $15.3 million. Meanwhile, shareholders have already endorsed a pay raise for British American Tobacco CEO Tadeu Marroco, who could earn up to $24.1 million if the company achieves profitability improvements and a 50% rise in share price over three years. In 2024, his pay was $14.1 million according to ISS data.
These trends indicate a shift towards larger remuneration packages contingent on performance, reflecting a change in sentiment among shareholders to endorse more competitive pay for UK CEOs. The UK’s Investment Association relaxed its position on executive compensation last year, allowing businesses more latitude to adjust pay structures based on their particular situations. In exchange, investors are seeking transparency on how companies measure leaders’ pay relative to their peers.
In the US, stock and options awards typically constitute about 70% of executive compensation, according to ISS. While CEO bonuses generally include financial performance metrics, some companies award pay even when share prices fall. During this period, 50 S&P 500 companies increased CEO pay despite a decline in total shareholder return last year, ISS revealed.
For instance, Moderna, renowned for its Covid-19 vaccine, has seen its share price fall to its lowest since March 2020. Despite this, the company granted one-time equity bonuses of $12 million each to its CFO, James Mock, and Chief Legal Officer, Shannon Thyme Klinger, to retain and motivate them amidst the stock price decline. Moderna reported that CEO Stéphane Bancel’s compensation increased from $17 million to $19.9 million.
Proxy adviser Glass Lewis has advised shareholders to vote against Moderna’s pay plan at the upcoming April 30 annual meeting, though Moderna has not responded to requests for comment.
Political tensions persisting in the US this year may deter investors from opposing CEO pay significantly, stated George Georgiev, a law professor at Emory University. Notably, Goldman Sachs shareholders recently approved $80 million in bonuses for two executives, despite waning support reaching a nine-year low. Georgiev remarked that asset managers appear to be in a mode of compliance.
