A couple of months ago, the Investment Association (IA) updated its Principles of Remuneration, which provide guidelines for shaping executive pay. The aim is to make pay structures fair, transparent and linked to performance – so that pay outcomes for executives are aligned with the long-term interests of shareholders. The guidelines had been criticised in some quarters for being too restrictive, and in others for being too lax, so it’s been a tricky balancing act.
The backdrop is the fall in value of sterling after Brexit, which reduced UK pay in foreign currency terms. That hit executives who were foreign nationals as their pay became more uncompetitive compared with their home market. A pay freeze followed during the pandemic, which also compressed pay further down, making recruitment and retention in other key roles a challenge.
After Smith & Nephew (SN) lost its chief executive to the US in 2019, other multinationals, such as AstraZeneca (AZN), became more determined to push up pay to retain their top people. In 2023, the London Stock Exchange called for a ‘big tent’ discussion to face up to the consequences of holding down executive pay. This was also aimed at investors concerned about wealth disparity who protest against large pay rises by voting against the directors’ remuneration reports at annual general meetings (AGMs).