IN-DEPTH: UK takes stock of compensation approach
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As the U.K. moves to find an appropriate way to bridge the executive pay gap with the U.S., companies and sectors most exposed to the market are slowly reconsidering their approach with many considering how best to balance performance- and non-performance compensation incentives.
DMI data show that median CEO pay at the S&P 500 reached $17.2 million in 2024, up 8% on 2023. At the FTSE 100, meanwhile, median pay has also been rising to reach 5.1 million pounds in 2024, a 3% jump versus 2023.
Even outside of the U.S. market, the U.K. is facing pressure at a European level. DMI data show that median FTSE 100 CEO realized pay is now on par with median counterparts in Germany’s DAX 30 and France’s CAC 40.
At the FTSE 100, long term incentive (LTI) pay accounted for 52% of median pay in 2024 and saw a 12% increase when compared to 2023, with base salary increasing by 7% - more than double the rate seen in 2022. At the S&P 500, LTI accounted for 68.4% of the overall median package awarded in 2024, up 8% while base salary saw a 3% rise, flat on 2022.
The shifting pattern has been influenced by many factors including a war for talent where the transatlantic divergence continues to drive debate with the U.K.'s Capital Markets Industry Taskforce having been one of the most vocal on its view that companies should be allowed to raise CEO pay in a bid to attract global talent.
Concerns were heard with the Investment Association (IA) updating its principles of remuneration late last year to simplify guidance on restricted share plans and recognize a move toward hybrid compensation models for companies competing in the U.S. market for both customers and talent.
“IA members want a competitive U.K. listing environment that attracts companies to list and operate in the U.K.,” the association said in its October 2024 statement while explaining the updated guidance “encourages companies to adopt the remuneration structure most appropriate for their business, corporate strategy and performance, and to explain how this aligns with the long-term interests of the company and its shareholders.”
Comfort to reconsider
The guidance has triggered many to reconsider their options to make executive pay more competitive while also doing so ahead of time.
“We've seen a lot more companies come forward with a new policy than we would generally have expected this year,” Mercer’s U.K. Practice Leader, Executive Reward Nic Stratford, told DMI. “Most companies are on a three-year policy cycle and for most companies we would have expected new policies next year. It seems clear that some large U.K. companies have gone early with policy updates in order to take advantage of some of the increased flexibility.” Corporate Governance Co-Lead at Schroders Pippa O’Riley also noted that the IA’s changes have given companies comfort to consider a change in approach.
“The language used in the IA’s updated principles allows companies to take a more creative and nuanced approach to their remuneration structures, rather than in the past where they may have felt the need to construct a scheme which fits within tighter bounds but may not have been the ‘best fit’ for their particular business,” she told DMI.
But how have such companies been adjusting their approach? Stratford noted that many companies that have made policy changes have focused on the quantum of variable pay, rather than trying to make big structural changes in plan design and that those to have made the most significant reforms tended to have considerable exposure to the U.S. market.
The number of companies to adopt restricted share plans (RSPs) in the U.K. remains low. Just 25% of the companies that were listed on the FTSE100 in 2023 had RSPs compared to around 78% at the S&P 500.
In 2019, 2.1% of the average FTSE100 CEO’s granted compensation came from RSPs with the figure increasing to 3.8% in 2023.
Disclosure and justification
As the U.K. continues to balance fairness and corporate responsibility with the need to advance the market's competitive position, investors are resolute in what they are looking for from issuers: transparent disclosure and reasonable justification for changes.
Such factors have likely influenced a rise in support levels for remuneration policies at the FTSE 100 in recent years with support levels rising from 88% in 2021 to 92.5% in the first half of 2025.
“Say on pay” proposals voted on at the index have also seen increased investor backing with average support rising from 92.7% in 2023 to 95.3% in 2024, higher than any year on DMI’s record. The first half of 2025, however, saw investor confidence take a dip with support for “say on pay” resolutions averaging at 92.8%.
O’Riley highlighted that companies are generally best prepared by coming to shareholders early with any proposed changes and by also being willing to negotiate to find an agreeable package for all stakeholders.
Yousif Ebeed, corporate governance co-lead at Schroders, also noted that investors are likely to be more accepting of structure changes if issuers are “taking a haircut on quantum,” especially on the restricted part of the plans. He stated that for the most part, companies that have changed their plans since the IA’s update have “listened to the guidance and operated within that,” with some outliers.
Looking ahead, remuneration committees are advised to use the competitive argument wisely, and only when there is a robust argument for pivoting to a U.S.-style compensation package. Compensation consultants told DMI that this should always take the company’s sector, size, peer group, operations and strategy into consideration. “The consultation process is more important than ever. We need to understand why a company believes this is the right move, what peer group they are using, which is crucial, and ensure it is the right decision for them," O’Riley concluded.
