![Michael O'Leary speaking at an event](https://media.guim.co.uk/9fe6625d132df48ca90db8632187c2df78bb028f/0_400_6000_3600/1000.jpg)
The unofficial – but determined – campaign to allow FTSE 100 chief executives to be handed US-style megabucks pay packages has a new pin-up.
He is the familiar figure of Michael O’Leary of Ryanair, who isn’t running a Footsie company but is on course for a blowout bonus that, the megabucks lobbyists will argue, demonstrates the case for incentivising bosses with even bigger financial carrots. O’Leary is looking good for a €100m bonus under a 2019 scheme that required the airline’s share price to head to the moon, which it is almost doing to the necessary degree.
It’s a short-haul hop from O’Leary’s scheme to the idea being promoted that executives at large UK-based companies are underpaid versus their US cousins and that the country faces a drain of executive talent unless we swallow our scruples about US-style awards.
“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,” said Julia Hoggett, the chief executive of the London Stock Exchange, in May, making herself popular with the UK executive class.
Her appeal for a “big tent” conversation is having an effect. The fund manager Legal & General Investment Management has adjusted its voting policies on pay policies to allow companies the “necessary flexibility” needed to attract the best talent, the Sunday Times reported at the weekend. With a hint of what’s coming next year, LGIM acknowledged “an increased push” by UK companies towards “remuneration structures that are more closely aligned to US-style pay”.
But, before the Hoggettiers run away with this debate, a reality check is needed. The rough going rate for a successful chief executive of a company at the top end of the FTSE 100 is £10m a year. That may not gain bragging rights stateside, where $30m bonuses barely cause a stir, but is still a decent whack from the point of view of the recipient. Are Footsie companies, whose board tend to be highly international (you can even find a few Americans), really under the cosh recruitment-wise?
Virtually the only example ever offered in this context is Namal Nawana, the American who was once chief executive of the medical group Smith & Nephew but hot-footed it back to the US after only 18 months after a row over pay. But the Nawana case was four years ago. It has not been followed by a spate of defections.
An uncontroversial pick for the best-managed top-10 FTSE 100 firms over the past decade might be AstraZeneca, Diageo and Relx. All have had longserving bosses – Pascal Soriot, the late Ivan Menezes and Erik Engstrom respectively – who have been paid very well by UK standards but all could very likely have been paid more in the US. All stayed.
The pay-em-more lobby sometimes expresses its argument as a plea for exceptionalism in corporate turnaround situations. But that door is already open. Ryanair narrowly got a thumbs up from shareholders for O’Leary’s lolly back in 2019. Even Pearson, the educational publisher, persuaded its shareholders to back the hiring of Andy Bird, a former Disney executive, on a US-style package with a bumper share component.
What the corporate lobbyists resent, one suspects, is being forced to explain why they are supposedly a special case. Chairmen don’t like the sometimes hostile reaction in the outside world, and they don’t like having to explain why, in cases like Pearson’s, their companies have performed so poorly for so long that they’re pushing the recruitment equivalent of the panic button. The chairmen would like their lives to be easier and the process to be normalised.
Well, tough. There are good reasons why it ought to be difficult to diverge too far from boardroom pay norms. UK executives are not underpaid versus peers in the rest of Europe. The median pay for FTSE 100 chief executives was on average 80 times that of an ordinary employee, according to High Pay Centre’s figures last year, a ratio that would have been regarded as unacceptable even a generation ago.
A fight is coming, but the message to UK plc ought to be simple: don’t import and normalise US packages, just run your companies better. And remember the candid admission of a former (very well paid) Shell chief executive, Jeroen van der Veer, when he made his way to exit 15 years ago: “If I had been paid 50% more, I would not have done the job better. If I had been paid 50% less then I would not have done it worse.”
• This article was amended on 19 December 2023 to correct a misspelling of Erik Engstrom’s first name.