Julia Hoggett has been a breath of fresh air as chief executive of the London Stock Exchange for the past two years. A sociologist by university background, she talks as if she genuinely cares about the role of the exchange in the UK economy – a concern that is often hard to detect within the parent company’s obsession with global data and analytics products.
She’s firmly within the new consensus that says core elements of the UK’s governance and shareholder-protection regime should be dismantled to attract more companies to London, as proposed by the Financial Conduct Authority this week (this column’s view: sadly, that pragmatic analysis may be correct). But she’s also produced genuinely innovative ideas, such as a plan to create a share-trading venue for privately owned firms as a stepping stone to a full UK market listing.
Hoggett’s latest free-thinking thoughts on how to boost the capital markets “ecosystem”, however, deserve no applause. Rough gist: UK-based executives need a pay rise to keep them loyal to London.
OK, the analysis is not quite so unsophisticated, but the spirit of her appeal for “a constructive discussion” about boardroom rewards isn’t hard to decipher. “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,” argues Hoggett.
“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.”
She’s obviously correct that proxy voting agencies are hypocrites who protest, say, a £10m boardroom package in the UK while nodding though a $30m one at an equivalent company in the US. But, come on, the idea that executives in UK-listed companies must be bribed with more money or more share incentives is nonsense.
FTSE 100 executives are not underpaid v European peers, which is a more appropriate playing field for comparison. As for recruitment, the top end of the UK quoted-company ladder is remarkably international. All-comers are welcome – and they’ve been arriving for years.
Hoggett might look at the London Stock Exchange Group, the parent FTSE 100 firm, itself. It managed to hire as its chief executive David Schwimmer, an American who had been at Goldman Sachs, where they don’t pay themselves badly, for 20 years. Schwimmer has been prepared to rub along on £4.7m (2022) and £6.8m (2021) in the UK. Before him, it was a Frenchman, Xavier Rolet.
There are rare examples of FTSE 100 chief executives fleeing to the US unexpectedly. Laxman Narasimhan switched from Dettol-to-Durex firm Reckitt Benckiser to Starbucks last year. On the other side of the ledger, though, Pearson persuaded its shareholders to swallow the hiring of ex-Disney executive Andy Bird on a US-style package with a bumper share component; there was noise (Mickey Mouse rewards, etc), but it got through.
The point is that a healthy stock exchange also requires its leading companies to conform vaguely to local expectations of fair rewards. Not everybody can float in the mid-Atlantic accountable to nobody. Pay ratios at many FTSE 100 firms are already stretched way beyond what would have been acceptable 20 years ago.
Hoggett says she is seeking contributions to a “big tent” conversation around execution compensation. Here’s one: boardroom pay in the UK is already too high. And, if the wider reforming agenda on stock market rules and regulations comes to be seen as a backdoor way for UK executives to ramp up their pay, the outside world may conclude that the whole thing is a racket. Concentrate on reforms with broad appeal.
