The fast-evolving UK executive pay landscape

Over the past 20+ years we have seen UK executive pay design converge, as FTSE organisations have looked to pay practice in other UK public limited companies when designing remuneration policies and have been discouraged from diverging from the accepted UK norm, be it in terms substantive changes to policy, or changes at the margin, or somewhere in between.

At WTW we are proud to be working with key stakeholders, influential bodies such as CMIT and organisations who have brought the debate into sharp focus over the last 18 months. The key areas driving the debate include:

Unlocking the ability to compete in a global talent pool
The Boards of the UK’s largest organisations have become more diverse. Global organisations rightly seek experience from individuals with global careers and these organisations are consistently struggling to attract and retain the best global talent. The impact is being felt at executive level as well as reporting levels below this due to pay compression challenges, particularly if a company has a large US presence.
Increasing the flexibility on how executive pay is designed
To be able to compete in different markets does not necessarily mean organisations need to pay more, but potentially, to pay differently. Divergence from the “FTSE norm” of an annual bonus + Performance Share Plans (PSP) should not be a reason to vote against a Remuneration Policy if there is a clear business and talent need to adopt alternative pay models.
Changing the binary “comply or else” approach to governance
The number of “shareholder friendly” governance features that exist in executive packages is unprecedented compared to other markets (e.g. bonus deferral, LTI holding periods, post-cessation shareholding guidelines, malus and clawback etc.) which has unnecessarily reduced the perceived value of pay. In response to this, this AGM season several organisations have softened their deferral such as reducing the portion of mandatory deferral once the shareholding guideline has been met or partially met.
The need for a level playing field from proxy voting agencies
UK listed organisations are subject to a more stringent set of proxy guidance than US or European peers. The current diversity in proxy voting policies across regions has the unintended and arbitrary side effect of reducing the competitiveness in some geographies. We previously discussed this in our article - Is executive pay a factor in the decline of London share listings?.

Our learnings from the 2024 AGM season

This AGM season we have supported some of the largest global listed organisations in putting bold remuneration policy proposals in front of investors, based on the priority needs of the business and cognizant of, but not led by, corporate governance expectations. But what have we learned?

Shareholders are more likely to support bold policy changes if an organisation has performed well and returned value to shareholders.

Shareholders are more likely to accept increases in board level pay if commensurate changes are made elsewhere in the organisation.

What next?

We expect the UK pay market to continue to evolve at pace. We are continuing to support our clients in addressing business and talent issues through changes to executive pay policy of varying scale. This includes changes at the margin to more substantive changes such as aligning pay policy with US/global peers from a quantum or structure perspective, or both.

The evolution of pay within the FTSE will have consequences for all organisations, not just those making the change. Significant increases in pay levels over time will impact pay positioning of all organisations relative to the FTSE market and experience tells us that change at the top of the FTSE will eventually flow downwards. As such, Remuneration Committees will need to pay even closer attention to the external landscape to ensure their organisation is not out of step with the pay market.