Stop vilifying high pay in Britain, City chief urges

London Stock Exchange says market is lagging New York because investors reject executive awards

BRITAIN is being held back by a campaign against high pay, the head of the London Stock Exchange (LSE) has warned.

Julia Hoggett said a pay disparity between UK chief executives versus their American counterparts had “not received enough attention” and called for a level playing field to stem an exodus of companies from the Square Mile.

Her comments came just hours after the Financial Conduct Authority (FCA) said it would slash red tape and shake up London’s listing rules in an effort to reinvigorate the stock market.

In a statement on the LSE’S website, Ms Hoggett called for a “constructive discussion” on how Britain approached executive pay.

She said: “We should be encouraging and supporting UK companies to compete for talent on a global basis, so we remain an attractive place for companies to base themselves, stay and grow.

“The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it.”

Boardroom pay has long been more lucrative in the United States compared with Britain, where more restraint is typically advocated.

Mark Freebairn, of Odgers Berndtson, a City headhunter, said US companies typically paid about 10 times more than for the same job in Britain.

He added: “This limits the ability of UK firms to persuade credible candidates to the UK, and inhibits the retention of international talent.

“A ‘comply’ rather than ‘explain’ culture around executive pay has become a contributory factor to whether boardrooms want to list in the UK, move to the US, or opt for a private takeover.”

Ms Hoggett criticised the decision of some shareholders and proxy advisers to vote against executive pay policies in Britain “even when those pay levels are significantly below global benchmarks”.

She said: “Often the same proxy agencies and asset managers that oppose compensation levels in the UK support much higher compensation packages in different jurisdictions, notably in the US.”

Yesterday, shareholders rejected Unilever’s pay report after proxy advisers said its new chief executive’s salary was excessive.

Nearly 60pc of shareholders rebelled against the company’s remuneration report following recommendations to vote against it from ISS and Glass Lewis, two of the City’s most prominent shareholder advisers.

Hein Schumacher, who will take over as chief executive in July, was poised to be given an annual salary of €1.8m (£1.6m) before bonuses. The pay report recommended that current boss Alan Jope be given €1.6m in fixed pay.

Among the FCA’S proposed reforms to make the City more attractive are the removal of compulsory shareholder votes for large transactions, while eligibility rules that require a three-year financial track record as a condition for listing would be scrapped.

The proposed overhaul comes after the number of listed companies in the UK has slumped by 40pc since 2008, with a string of companies including the British tech pioneer Arm recently snubbing the LSE in favour of New York.

The Centre for Policy Studies, a Conservative-leaning think tank, said the measures would not provide the “silver bullet” needed to boost the London stock market.

Flutter, the owner of Paddy Power and Sky Bet, said yesterday that it will forge ahead with plans to move its listing to the US despite the FCA reforms.

Peter Jackson, chief executive of Flutter, said: “Acquiring a US listing would enable us to switch our primary listing at a later date.

“It’s about the pull factors. Nearly 60pc of our global stakes in sports are now done in America.”

CRH, the FTSE 100 buildings materials business, has also signalled its intention to move to America. Ferguson, the blue-chip plumbing company formerly known as Wolseley, crossed the Atlantic last year.

There can be no doubt that the City is under threat. But a scrambled rescue mission by the regulator is unlikely to be its saviour. London’s status as a pre-eminent hub for international capital has been on the wane for years, and it will take more than a few tweaks to the rules around stock market listings to reverse the trend.

The proposed reforms from the Financial Conduct Authority (FCA) are an attempt to build on Lord Hill’s government-authored review into the same issue. One of his key findings at the time was that the number of public companies in the country had fallen 40pc since 2008.

But that was two years ago and since then the problem has almost certainly become much worse, enough that it risks being another case of shutting the stable door after the horse has bolted.

It is bad enough that the City struggles to attract overseas firms in the way that it once did, but these days even British companies don’t want to be here.

The Government has been badly stung by the decision of microchip champion Arm – one of Britain’s few true home-grown tech success stories – to relist its shares in New York rather than in London, despite ministers frantically urging the company to stay true to its roots.

But if Theresa May’s administration had not been so short-sighted in jockeying the company into a sale to Japan’s Softbank during the EU referendum, there would be no need to try to entice it back in the first place.

Britain’s naive, “help yourself ” policy of allowing this country’s best companies to fall into the hands of absentee foreign owners – on the basis that it is the only possible way to demonstrate that we are “open for business” – has a lot to answer for, but the sale of Arm was an embarrassing low point.

The saga has helped to convince our out-oftouch political masters that we must try to compete with America to attract the Arms of tomorrow, but that is just as misguided.

You can count the number of high-profile technology companies that have chosen London over Wall Street on one hand, and nearly all of them have been a spectacular flop, often as a result of overblown claims of their technological prowess. Deliveroo, a take-away food app with an army of kamikaze moped drivers, and THG (formerly the Hut Group), which sells protein shakes online, spring to mind. Yet, to hear their respective founders speak you would think they had solved perpetual motion. Both have lost in the region of 75pc of their value since listing.

Companies that are heavy on hype but light on substance will not lift Britain’s standing in the eyes of foreign investors, or indeed those companies seeking to join the public markets. They simply inflict further damage.

Relaxing corporate governance rules, as both the FCA and Lord Hill are proposing, will do little to improve matters. On the contrary, part of the problem with Deliveroo and THG has been that too much power is already concentrated in the hands of their respective founders. The same can be said of payments app Wise, another tech hopeful that has been bitterly disappointing.

That’s not to say that high-growth companies need more red tape or that innovation and expansion should not be encouraged, but liberals should be careful what they wish for.

The proposed changes are unlikely to prompt a sudden outpouring of affection for the Square Mile anyway.

Peter Jackson, boss of Flutter, was quick to push aside the regulatory overhaul as the gambling giant presses ahead with plans for a secondary New York listing. The US market offered a “greater liquidity pool”, he explained succinctly.

The Centre for Policy Studies described the measures as welcome, but no “silver bullet”.

But the biggest problem is the Government’s seemingly unshakeable obsession with Britain becoming the next Silicon Valley, something that an increasing number of bosses are expressing frustration with. It’s a fool’s errand, and while ministers pursue the unattainable, more prosaic – yet no less important – blue-chip companies such as Flutter or construction firm CRH have one foot out of the door with plans for a US listing. The expectation is that it won’t be long before they’ve made the full switch, especially if their industries continue to be overlooked by myopic ministers.

Britain needs an alternative plan. When it comes to technology companies we cannot compete with New York. We are a poor second best. The US has Apple, Google, Meta and Elon Musk. The UK has Matt Moulding, a man who has turned his prized hut into a dilapidated shed, and Will Shu, whose efforts at shaking up the global food industry have turned into a dog’s dinner.

We must focus on what this country does best. True, Britain is a world leader in life sciences, green power and the creative industries – sectors that rely on cutting-edge technology and undoubtedly need to be nurtured – but we are also at the forefront of banking, services, defence, mining and energy, areas that are too often sidelined in the bid to woo the next social media platform or online retailer.

There are those that will argue that such a strategy would be short-sighted and unambitious because many of these businesses are too heavily tied to the old economy. It isn’t, it’s just playing to our strengths.

Watering down the rules risks starting a race to the bottom. As increasing numbers of investors get burnt, Britain’s reputation will be damaged even further.

‘Watering down the rules risks starting a race to the bottom’