The talent tug-of-war: UK vs. US executive pay

The question of CEO pay is an important one for both investors and companies and has once again taken centre stage. Last week, Britain's largest asset manager, Schroders, sounded the alarm over a significant pay gap between UK and US executives, which could lead to a drain of top talent from the UK to the United States. This news has raised important questions about the competitiveness of the UK's corporate environment and its ability to retain high-performing leaders.

Schroders recently conducted extensive analysis of pay packages for 2,353 chief executives across Britain and the United States. The findings were stark: on average, UK CEOs earn just one-fifth of what their American counterparts make. Even after accounting for company size, US executives still receive more than twice the compensation of their British equivalents. Kimberley Lewis, Head of Active Ownership at Schroders, emphasised that this disparity could tempt talented executives to seek opportunities across the pond, where the combination of higher pay and dynamic corporate sectors proves more attractive.

This debate over executive pay is part of a broader concern about the health of the UK's capital markets. Since 2021, there has been a widely reported decline in company flotations in London, and several high-profile companies have opted to list in New York instead.

In response, a series of reforms have been introduced to update listing rules and boost London's attractiveness. See SEC Newgate's views on these changes here. However, the question of whether these measures will be sufficient remains open, especially if the issue of competitive executive pay is not adequately addressed.

Therefore, perhaps it is time for UK companies to reconsider their approach to executive compensation and find a way to offer competitive pay packages that align with shareholder interests and reflect the global market standards. As ultimately, failure to do so could result in a talent exodus, and harm the broader economy and investors.