Is it profitable for British executives to move to the US?

When Gavin Patterson became CEO of San Francisco-based tech company Salesforce in 2019, there was one clear advantage after running BT for several years, which were sometimes unbearable.

“On a personal level, you can make more money in the US,” he said. “And there’s no public outcry if you succeed.”

Patterson made the decision many UK managers are now facing – whether to move jobs, and sometimes businesses, to the US, given the potential for higher valuations and personal gain.

Returning to London after stepping down in January to pursue a non-executive career, Patterson is also certain the grass is not always greener for British managers.

“The government in the US has positives and negatives,” he said, reflecting on the threat of class action lawsuits and the more common combination of the roles of chairman and chief executive.

The debate over whether the UK is losing its top talent – and lagging behind New York as home to the world’s biggest companies – has flared up in recent months.

Last week, the head of the London Stock Exchange, Julia Hoggett, called for a fresh look at how executives are paid in the UK – and in particular the role of brokerage agencies, which often push shareholders to vote on lower pay. Her words reflected the concerns of many FTSE chairmen about the limitations they see in paying competitive salaries to their top managers.

Shareholders recently voted down salary proposals at Unilever, one of the UK’s biggest companies, and more riots are expected as executive pay comes under scrutiny amid the wider cost of living crisis. Campaigners and politicians have also called for a cap on executive pay as the gap between top-level and lower-level workers widens.

Laxman Narasimhan is one of the recent examples of executives who have transformed their wealth by moving from the UK to the US. He earned the equivalent of $7.5 million in the last full year as chief executive of UK-listed homeware group Reckitt Benckiser, but negotiated a potentially $17.5 million-a-year package to run the US coffee chain Starbucks, ignoring even one-off incentives that had a headline number as high as $28mn.

In 2019, Namal Nawana resigned as CEO of Smith & Nephew because the British medical device company was unable to meet his wage demands.

Mark Freebairn, head of management practice at headhunters Odgers Berndtson, said the issue is becoming a crisis for some companies: “There is real anxiety about losing executives to the US. This is happening at the level of the president, CEO, CFO and non-executives.”

The median total remuneration for senior executives, including salaries, bonuses, stock awards and options, is now around £26m at S&P 500 companies, according to Refinitiv figures based on annual reports. For FTSE 100 companies, the median is around half that amount at £13m.

LSE boss Julia Hoggett last week called for a fresh look at how executives are paid in the UK

LSE boss Julia Hoggett last week called for a fresh look at how executives are paid in the UK © Charlie Bibby/FT

Looking specifically at the CEO position, according to Willis Towers Watson, the median salary in the US was $13.4 million in 2019, compared to $5.5 million in the UK. Base salaries for CEOs were broadly comparable, but US companies offered significantly higher bonuses and long-term incentives.

Freebairn said pay was not the only factor motivating executives considering the move: “The regulatory environment [in the US] means more time spent running the business and less time ticking boxes.” But earning potential was an obvious concern “when you know someone is doing the same job for five or six more.” He cited the example of a CEO of a US company acquired by a UK rival who became CEO of a group in London but was forced to take a pay cut for a promotion.

Patterson agreed that “red tape and compliance have become excessive” in the UK, saying most of the commentary now required in UK annual reports comes down to ticking boxes.

Gavin Patterson became CEO at San Francisco-based tech company Salesforce in 2019
Gavin Patterson: “On a personal level, you can make more money in the US” © Glyn Allen/GASP Creative

The anxiety over executive rewards is not unique to the UK, noted Tom Glocer, who ran London-listed Reuters and then Canadian-controlled Thomson Reuters from 2001 to 2011. As a member of the compensation committee at Publicis, a French advertising group, he noted similar concerns about the brain drain of French executives.

Nor is hostility to high wages new, Glocer said. Even in the 1990s, British Gas faced “fat cat” protests under US-born CEO Richard Giordano, while EMI struggled over how much it paid fellow US executive “Lucky Jim” Fifield.

Glocer said it was “clearly wrong” that some US boards were willing to pay $100 million worth of packages to people who were perfectly capable of running companies for less, but he questioned a more frugal and time-consuming approach across the Atlantic.

“It is not all negative that such strong persuasion has to be stopped in Europe [high pay] but the balance is often disturbed. . . and the waste of time is enormous.”

Comparable US and UK senior executive pay figures do not take into account the fact that many much larger companies operate in the US. One British executive from New York said, “There are more bigger roles here than there.”

Tom Gosling, an executive at the London Business School, said the average size of companies worth over $10 billion in the US is higher than that of a comparable cohort in the UK, given its mega-capital tech stocks.

“So a 2x or greater difference in wage levels. . . is probably a bit exaggerated. Over many years, comparing the salaries of CEOs in the US with the UK and Europe, I developed a rule of thumb that in companies of comparable size, the salary of CEOs was about 50 percent higher [in the US]”.

He noted that the gap “probably has increased recently as UK wages have been more or less constant (with some ups and downs) over the years, while US wages have continued to grow by 5 to 10 per cent a year.”

However, he added: “While CEO salaries have become more of a political issue in the US, the ‘outrage limit’ is still lower.” He added that in the US, the “pay-on-pay regime” for investors remains advisory, unlike the UK’s binding one.

For some British managers, not only the salary, but also the culture is attractive in the US. Richard Harpin, founder of former FTSE 250 services group Homeserve, which was bought this year by Brookfield’s infrastructure funds, said there was no better place to start a business than in the UK. But Harpin added that “there is no doubt that entrepreneurs were more applauded in America.”

He said there was a feeling in the US that investors were more focused on long-term growth. “That’s why we’re seeing a lot of companies move the list from London to double, only to the US. The UK stock market needs long-term investors and companies that are better valued.”

For companies, whether a move makes sense will depend more on how much of their business and shareholder base is in the US than how much they can pay their executives. Patterson said tech-based companies are undoubtedly better suited to the US, offering high valuations and stronger reach for analysts and investors.

This view is shared by Endava, an IT services company that moved from London to New York five years ago. “We thought [US investors] better understand our history,” said Mark Thurston, its chief financial officer. “They understand what we’re doing. They didn’t do that in Britain.”

Regarding the role executive pay played in the decision to move, he noted that “nobody [in the US] would blink an eye” on the $3.7 million John Cotterell, founder of Endava, earned last year.

“I think there is more sensitivity in the UK, but does that affect decisions [whether] want to work for a US listed company? I don’t know, Thurston said. At least in the case of Endava, “Comp didn’t get involved at all.”

Salary may be a bigger factor in other industries, according to Glocer, who also sits on Morgan Stanley’s board, and he singled out banks as “probably the worst case.”

If an executive decided to pursue a career in banking early in life, he said, “It’s all up to the Benjamins.”

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