More than 20 leading social scientists have warned the UK’s biggest investment companies and pension funds that allowing US-style executive pay packages could “create a significant risk of higher inequality” and “much worse lower levels of happiness, health and wellbeing across society”.
The academics said they had decided to speak out as an increasing number of British business leaders and the London Stock Exchange have argued for much higher pay awards to improve the UK’s competitiveness.
This is despite the bosses of the 100 largest UK-listed companies collecting median average pay of £4.4m in 2022 (the latest year available). The figure represents a 16% increase on the previous year, and is 118-times the median UK worker, according to the High Pay Centre thinktank. AstraZeneca’s chief executive, Pascal Soriot, was the best-paid, collecting a £17m pay package last year.
The drug company, along with HSBC, LSEG – the owner of the London Stock Exchange – and the medical devices group Smith & Nephew have revealed, or signalled, that they want to increase executive rewards to keep up with US rivals.
Julia Hoggett, the chief executive of the London Stock Exchange Group, has said higher pay in the US has led to an exodus of UK executives and companies jumping across the Atlantic.
Executives at S&P 500 US companies are paid three times as much as those in the UK – an average of $16.7m (£13.1m), according to the US trade unions federation AFL-CIO.
Hoggett previously called for a “constructive discussion” between UK investors and advisers to increase pay levels in Britain. “The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it,” she said.
In their letter to the biggest investment companies and pension funds, the academics said they were “concerned that neither the business case to justify these assertions nor the potential negative social and economic consequences of higher top pay” had been “properly scrutinised or debated”.
They said: “The desired ‘constructive discussion on the case for the UK’s approach to executive compensation’ has so far focused largely on the case for further executive pay increases.” The academics said not enough thought had gone into the risks of higher executive pay.
The risks, they said, included “a strong link between higher levels of inequality and more pronounced socioeconomic problems in terms of public health and wellbeing.
“Listed companies include some of the UK’s biggest employers and the pay for their senior managers acts as a benchmark for high earners in other fields. Raising top pay levels at these companies creates a significant risk of higher inequality. This is a potential threat to economic stability, to the happiness and prosperity of the people whose savings provide capital for investment and ultimately to investors in the UK economy.”
The letter, which was coordinated by the High Pay Centre, did not express blanket opposition to higher executive pay at all companies, “but instead, recommends that investors treat proposals for top pay increases with appropriate scepticism before choosing whether or not to support them on a case-by-case basis”.
Luke Hildyard, the director of the thinktank, said: “The debate about pay in the UK needs to recognise that there is considerable evidence and a number of expert voices opposed to very high top pay awards.
“While it is not a zero-sum game, excessive executive pay does have implications for the pay levels of the wider workforce. There is also a well-documented link between higher levels of inequality and much worse lower levels of happiness, health and wellbeing across society.”