Here’s a bold statement: The way UK companies justify massive executive pay rises is often nothing more than a thinly veiled excuse, and it’s time we called it out. But here’s where it gets controversial—an influential group of shareholders is now demanding that these firms stop relying on generic, one-size-fits-all arguments to explain why their top executives deserve such hefty payouts. The Investment Association (IA), whose members manage a staggering £10 trillion in assets, has issued a clear warning: enough with the ‘boilerplate’ reasoning.
So, what’s the problem? It’s a practice called ‘benchmarking,’ where companies claim they need to raise executive pay just to keep up with competitors and prevent their leaders from jumping ship. Sounds reasonable, right? Not so fast. The IA argues that this approach can create a dangerous ‘ratchet effect,’ driving salaries higher and higher without any real justification. And this isn’t just about numbers—it’s about fairness, accountability, and whether these pay rises truly benefit shareholders.
In its annual letter to London-listed companies, the IA—whose members include heavyweights like Schroders, Legal & General, and Aviva—made it clear: benchmarking alone isn’t a valid excuse. They’re calling for ‘well-substantiated’ reasons for pay increases, not just vague claims about ‘attracting talent’ or ‘staying competitive.’ And this is the part most people miss—when companies rely solely on market trends to justify pay hikes, they often overlook whether these increases actually align with performance or shareholder interests.
Take, for example, the recent surge in executive pay among FTSE 100 CEOs, which jumped 11% last year to a median of £6.5 million. That’s faster than the rise for US bosses, whose median pay is already a staggering $16 million. Meanwhile, London Stock Exchange CEO David Schwimmer saw his pay soar to £7.9 million in 2024, up from £5.4 million the previous year. Is this really about talent retention, or is it just a race to the top?
The IA’s message is simple: prove that pay is tied to performance. As the UK’s 350 largest listed companies prepare their annual reports ahead of the spring shareholder meetings, this will be under the microscope. But here’s the kicker—despite these warnings, there’s a growing campaign to raise executive pay, with some City firms arguing that lower salaries are hurting London’s competitiveness. Julia Hoggett, CEO of the London Stock Exchange, recently claimed that UK companies need to be ‘forceful’ about rewarding top talent to compete globally. Is this a valid concern, or just an excuse to inflate salaries?
Andrew Speke, interim director of the High Pay Centre, welcomes the IA’s stance but remains skeptical. He argues that the real value of a CEO’s contribution—and how their pay compares to the rest of the workforce—should be the focus. Yet, he admits the IA’s warning may only change how pay increases are described, not the practice itself. After all, benchmarking is deeply ingrained in the FTSE 350, and shareholders still lack the power to block pay policies they disagree with.
So, here’s the question for you: Are executive pay rises justified by the need to compete, or are they a symptom of a broken system? Should shareholders have more say in how much CEOs earn? Let’s spark a debate—share your thoughts in the comments, and let’s challenge the status quo together.
