The pandemic’s transatlantic divide in executive salaries

‘Consider a temporary cut in executive salaries’ was the Confederation of British Industry’s advice to members at the start of the pandemic. Back then I was gripped by fears of a backlash against capitalism: top pay cuts would indeed be wise, I wrote, not least because ‘sacrifice now is sensible insurance’.

Looking at last week’s election results, I needn’t have been concerned about a second coming of socialism. But I’m one of many advocates for responsible capitalism who have long worried about growing disparities between executive and average pay — the key multiple having risen from 50 to 120 over the past two decades — that rarely reflect underlying performance. The pandemic offered an opportunity for rational restraint in the guise of social solidarity. We can now begin to see how companies on both sides of the Atlantic responded; the difference is instructive.

In the UK, analysis by PwC found a median 22 per cent fall, to £3.5 million, in total pay of chief executives of 50 FTSE 100 companies. Many have also ‘taken an axe to 2021 long-term incentive plans’, says the Financial Times. These trends have set benchmarks for shareholder rebellions on pay awards in companies such as Rio Tinto, Glencore, Pearson and Flutter, the online betting giant.

In the US, by contrast, boards mostly took their cue from President Donald Trump and paid bosses even more, despite window-dressing cuts to base salaries that are a small portion of total rewards: the Wall Street Journal found median pay for 300 US chief executives up from $12.8 million to $13.7 million and ‘on track for a record’.

What next? Over here, I suspect restraint will persist without nudging from Downing Street, because institutional investors have the bit between their teeth and will keep pressure on companies that look out of line.