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UK CEO market: Is it at risk from US competition?

5 min read

Could pay constraints, mounting regulation and a restrictive governance environment lead to a CEO talent drain to the US?

The business, regulatory and even cultural environment in the UK are presenting a new framework of difficulties for CEOs of listed companies. UK corporate regulation, which was once arguably the greatest in the world, is now onerous and borderline counterproductive. Remuneration assessments limit PLC CEO pay to UK benchmarks, even when... 

... salaries in comparable jobs in the US are four times higher.

Mark Freebairn Partner, Head of CFO & Board Practices

While public and political sentiment toward the success of individual UK business leaders is often negative, it is openly applauded in the US. This environment is leading to an exodus of CEO talent to private equity backed companies in the UK and risks opening the door to competition from US firms.

Why is UK PLC regulation causing CEO departures?

Historically, regulation was grounded in the premise of “comply or explain why not”. This allowed business leaders and regulators to adopt a pragmatic approach to regulation that maintained a sensible equilibrium. This no longer exists and businesses are left only with “comply”, forcing leaders to spend more of their time trying to navigate inflexible and limiting regulations. A recent survey of FTSE 350 company secretaries highlighted that nearly a quarter thought the increased reporting requirements meant less time for Board’s strategy meetings.

As a result, time spent on corporate governance has doubled, with CEOs often spending two out of every five days managing regulation and external stakeholders.

There is little time left for leading their business and as a result, many PLC CEOs and other senior executives are actively seeking out leadership roles in less regulated environments.

There is also genuine anxiety among boards about losing talented leaders to the US, where the regulatory environment is more favorable to business.

Why UK remuneration benchmarks risk US firms poaching UK CEOs?

In the US, remuneration assessment is carried out by Boards who are free to set performance-based pay for CEOs. 

This means US companies can incentivize their CEOs to drive extreme value for the business, exceed revenue targets and generally outperform. 

And, with a global benchmark, US businesses measure their leader’s remuneration against the world.

Whilst in the UK, PLC CEO remuneration is benchmarked against other UK businesses, setting a narrow, local playing field compared to the US.

An emerging trend in UK remuneration packages, is for new CEOs stepping up to their first role to be offered lower remuneration package in their first year, with the agreement that package will increase to the market rate once they have proven themselves. This would save the company money in the process, however, CEO pay increases are limited to the average employee rise. They have to take a chance offering newly appointed CEOs higher pay rates from the outset, counterweighing those potential savings. Julia Hoggett, head of the London Stock Exchange believes UK executives should be paid a higher rate, as discussed in a recent article from the FT.

How can UK PLCs retain talented leaders?

CEOs and other board-level executives looking to move out of PLC and into PE is an ongoing trend. It has contributed to a number of UK companies relocating to the US and listing on the New York Stock Exchange, contributing to the broader talent drain away from the UK.

To mitigate a talent exodus, the UK regulators need to address this shift and work with industry to transition to a more equitable approach to regulation PLC benchmarking. This should be global rather than limited to the UK, while relaxing remuneration scales will lead to fairer and more pragmatic pay decisions.

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