When Julia Hoggett, chief executive of the London Stock Exchange, called for pay rises for British business executives last summer, there was a chorus of disapproval.
Industry figures dismissed her claims that the asset manager’s vote against pay policy had “hindered” efforts by UK-listed companies to attract and retain talent.
Prominent figures such as David Cumming, head of UK equities at Newton Investment Management, disputed her claims, arguing that this hostility to high wages is a key reason why more companies are listing in the US. chanted.
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But there are signs that her cause is gaining support. The investment association has written to the chairs of remuneration committees, saying it has recently found shareholders at several companies open to discussing controversial changes to executive pay.
“IA members want a competitive UK listing environment that allows the right companies to list and operate in the UK,” IA managing director Andrew Ninian said in the letter. .
He added that recent discussions with listed companies and members have resulted in the IA undertaking a fundamental review of its remuneration principles, which it plans to publish later this year.
Some key members of the IA have already changed their positions. Legal & General Investment Management updated its guidelines in December, emphasizing “flexibility” on pay issues. The government has also shown an open stance on “hybrid” incentive systems if companies insist.
Some companies are asking shareholders to allow hybrid packages. These are a combination of UK-style performance-based stock bonuses and US-style restricted stock based solely on stock price.
The IA’s statement appears to be a victory for industry leaders who support Hoggett’s push, including Schroders chief executive and IA board member Peter Harrison. Mr Harrison is also a member of the Capital Markets Industry Taskforce, a government-backed body chaired by Mr Hoggett that is looking at ways to make London’s market more competitive.
He said the issue of executive pay was “critical” for London and slammed concerns about pay disparity, a focus of many stewardship teams.
“Limiting the pay gap between chief executives and employees and accepting that boards need the freedom to attract the best talent to drive the best long-term outcomes for UK global companies. Which is more important?” he asked.
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Skeptics argue that the City’s near-panic situation, with poor IPOs in London and a flurry of companies relocating to New York, is being used as a pretext to reopen the debate over top pay. They say there are few, if any, clear cases in which executive compensation was a factor in determining where a company goes public.
Most ironically, it suggests that this entire effort is being driven by a small number of companies who want to offer even bigger packages to their highly paid chief executives. These include Hoggett’s employer, LSEG, which is consulting on a new package for Hoggett’s boss, David Schwimmer. This could increase his salary by three-quarters.
But Harrison’s views are shared by many other leading figures in the city. They deplore the extraordinary inflation in top pay, but reluctantly agree that shareholders need to show flexibility to protect Britain’s competitiveness.
The chairman of a major city company has found the perfect candidate for an important job, but is forced to look elsewhere when the package needed to attract them could be criticized by shareholders. said that it was done.
“It would have been the right thing to do for the company and for the financial interests of its shareholders, but we couldn’t do it,” he says.
Some venture capital executives say the UK’s salary environment is a key factor in London’s attractiveness as an IPO venue, which many fast-growing companies consider when deciding where to list.
IA’s Ninian said in the letter that pay is increasingly driving asset managers apart in opposite directions. While they are concerned about competitiveness, they also need to reflect the views of their end clients. Many pension funds have taken clear positions on the size and structure of their packages, with some asset owners becoming “more vocal about their wishes regarding fair remuneration, particularly in working poverty and social inequality”. It has become.
Asset managers also need to consider “the broader stakeholder perspective, including a company’s employees and public and political sentiment, who are often influenced by the media,” he wrote. This is another way of saying what they are worried about. daily mail you might say.
As a result, asset managers may object to offering U.S.-equivalent salaries to UK companies. This discrepancy infuriates Hoggett and others, but given the different cultures on both sides of the Atlantic, some differences seem inevitable.
The importance of political sentiment also means the Hoggett camp hopes recent developments portend further progress this year. I doubt their cause will be helped by a new Labor government.
To contact the author of this article with feedback or news, email David Wighton