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Pay executives more or risk exporting ‘talent, skills and revenues’

The UK needs to think about better rewarding its executives, the head of the London Stock Exchange has said.

Increased pay for directors would help the country retain talent and deter companies from leaving the City of London, Julia Hoggett said.

Ms Hoggett said one of the aims of the UK’s capital markets is to “support the creation of globally consequential companies in the UK to drive innovation, jobs and growth”.

She added: “Attracting and retaining domestic and international talent to create that value is something that UK listed company boards and their executive leadership teams strive to do every day.”

“We are at a pivotal moment. We should be encouraging and supporting UK companies to compete for talent on a global basis, so we remain an attractive place for companies to base themselves, stay and grow.

“The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it,” she warned.

“Constructive” discussions were needed around rewards and remuneration packages, she added.

Her comments came as shareholders of consumer goods company Unilever, owner of brands including Dove, Lynx and Ben & Jerry’s ice cream, revolted over pay packages for its bosses over concerns about potential excessiveness.

The deal proposed awarding chief executive, Alan Jope, €5.4m (£4.75m), including a €3.7m (£3.26m) bonus. Finance chief, Graeme Pitkethly, received €3.8m (£3.35m), including a €2.58m bonus (£2.27m).

Unilever confirmed that 58 per cent of shareholders opposed the package after its annual general meeting. The vote is advisory and, therefore, the company can still hand out the pay deal to its top executives.

Shareholder advisory group PIRC advised investors to vote against the remuneration package over concerns that the chief executive’s salary is too high by comparison with rivals. They said Mr Jope’s salary is 113 times more than the average employee’s pay where twenty times higher would be considered adequate.

Unilever said in a statement it was “disappointed that the advisory vote on the directors’ remuneration report was not passed. We are committed to shareholder engagement and will consult over the next few months to listen carefully to feedback and determine any next steps”.

Ms Hoggett warned the need to retain executive talent was being hampered by “advice and analysis” of proxy agencies which help investors, and some asset managers voting against executive pay policies “even when those pay levels are significantly below global benchmarks”.

She said the same advisers opposing UK compensation levels will support much higher compensation packages in different jurisdictions, notably in the US.

“This lack of a level playing field for UK companies is often not discussed, or if it is, the downside risks to our companies, our economy and our competitiveness are not part of the conversation,” she said.

A study by the High Pay Centre think-tank last year revealed that pay of the bosses of Britain’s biggest companies surged by 39 per cent in the aftermath of the pandemic.

An undated handout picture released by the London Stock Exchange Group on December 7, 2020 shows Julia Hoggett posing for a portrait. - The London Stock Exchange Group (LSEG) announced on December 7 the appointment of Julia Hoggett as the group's new Chief Executive Officer. (Photo by - / London Stock Exchange Group / AFP) (Photo by -/London Stock Exchange Group /AFP via Getty Images)
Julia Hoggett, chief executive of the London Stock Exchange (Photo: London Stock Exchange Group)

Median pay for a FTSE 100 chief executive rose from £2.46m in 2020 to £3.41m in 2021. Chief executives’ pay has also surpassed the £3.25m median recorded in 2019.

The study found the pay gap between executives and regular full-time employees was growing with the median FTSE 100 chief executive now paid 109 times the median UK full time worker, up from 79 times in 2020 and 107 times in 2019.

Ms Hoggett’s comments come after the Financial Conduct Authority (FCA) announced plans to shake up its rules in a bid to attract more companies to list shares on UK stock markets following a flurry of companies opting to list elsewhere in the world.

She argues the proposed rule changes are “just one element of the reforms needed to improve the competitiveness of the UK’s capital markets”.

While the UK has been Europe’s biggest financial hub for many years, listings in the country have dropped by 40 per cent since 2008, according to a government review.

Nikhil Rathi, FCA chief executive, said the new proposals “simplify” the rules and make it easier to join the market quicker. He warned there would be more risk for investors, who would need to “get to know companies better” before investing, he told BBC Radio 4’s Today programme.

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