Schroders warns of talent drain to America due to lower executive pay in UK

Britain’s leading asset manager, Schroders, has sounded an alarm over the disparity in executive pay between UK and US companies, cautioning that this gap may lead to a talent drain to America.

Schroders, which manages about £760 billion in assets, including stakes in major London-listed companies, conducted an analysis of the compensation packages of 2,353 chief executives in Britain and the US. The study revealed that UK CEOs earn, on average, one fifth of what their US counterparts receive. Even when adjusted for company size, US executives are paid more than twice as much as their British peers.

Kimberley Lewis, Schroders’ Head of Active Ownership, highlighted that the pay gap, along with other attractive aspects of the US corporate environment, could undermine Britain’s ability to retain top talent. In an article for The Times, she argues that there is a strong case for increasing the pay of UK executives to match the US levels.

“The size and dynamism of many US sectors attract talent at all organisational levels, offering opportunities to lead larger companies, take on more challenging roles, and work within global enterprise clusters such as Silicon Valley,” Lewis states. “Coupled with the pay differential, there is a risk that high-performing chief executives and other senior managers could be lured away.”

While excessive executive pay is a common grievance, Lewis contends that there must be a balance. “We want a strong link between shareholder returns and CEO pay. However, in many instances, especially where the company operates globally or in highly competitive sectors, there is justification for higher pay to ensure global competitiveness.”

Schroders’ stance comes amid growing debate in the City regarding British attitudes towards executive compensation and the health of the UK’s capital markets. Since 2021, London has seen a decline in company flotations and a trend of major public companies opting for New York over London as their primary listing venue. A notable setback was Arm, the Cambridge-based microchip designer, choosing to list on Wall Street last year.

This trend has spurred a series of reforms aimed at enhancing London’s appeal, including a comprehensive overhaul of listing regulations. Executive pay practices at British firms are also under increased scrutiny.

Dame Julia Hoggett, head of the London Stock Exchange, recently called for a “constructive discussion” about remuneration, noting the “lack of a level playing field for UK companies.” The Investment Association, representing firms managing £8.8 trillion, is also reviewing its pay guidelines.

Acknowledging that “boardroom pay is an emotive topic,” Lewis argues that not addressing this issue could have significant repercussions for the UK. “Shareholders of UK companies and their beneficiaries — savers, pensioners, and others — ultimately suffer if UK companies cannot compete globally for talent. Offering competitive pay helps reassure domestic and international investors that UK markets are a rewarding place to invest their capital.”