Introduction
Executive remuneration remains one of the most debated aspects of corporate governance globally. While the United States and the United Kingdom are developed, market-oriented economies with well-established corporate sectors, they differ significantly in how they approach executive pay. These differences are rooted in regulatory frameworks, governance philosophies, cultural expectations, and the broader socioeconomic landscape. We have written this paper based on ongoing discussions and debates with our Clients, colleagues and peers, trying to outline how our ecosystem handles executive remuneration practices, highlighting the implications on the US/UK divide when it comes to corporate strategy, investor relations, shareholder activism and long-term value creation.
Regulatory Frameworks
One of the most noticeable differences between the two countries lies in the regulatory oversight of executive remuneration.
In the United Kingdom, executive pay is governed by a combination of the UK Corporate Governance Code, the Companies Act 2006, and shareholder engagement standards set by entities such as the Investment Association. UK-listed companies must submit a binding vote on their remuneration policy every three years and an annual advisory vote on the implementation of the policy (the remuneration report). This structure ensures that shareholders have both strategic influence (on policy design) and operational oversight (on how pay was awarded).
By contrast, the United States follows a more flexible regulatory framework, primarily shaped by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Public companies must conduct an annual “Say on Pay” vote, but it is advisory only. Boards are not legally bound to change pay practices even if a majority of shareholders vote against the proposal. Furthermore, there is no mandatory requirement to submit the entire remuneration policy for shareholder approval. Regulatory oversight is primarily enforced by the Securities and Exchange Commission (SEC), which focuses on disclosure and transparency rather than prescription.
Governance and Committee Structures
In both jurisdictions, remuneration committees—typically made up of independent non-executive directors—play a critical role in determining executive pay. However, the governance culture differs considerably.
The UK Corporate Governance Code places strong emphasis on board independence, transparency, and fairness. It mandates that remuneration committees consider workforce remuneration and conditions when setting executive pay. It also expects companies to disclose pay ratios (CEO-to-median employee) and justify remuneration decisions based on long-term company performance.
In contrast, US governance standards—guided by NYSE or Nasdaq listing requirements—also require board independence but place a heavier focus on performance incentives and shareholder returns. Although CEO pay ratio disclosures are now required under the SEC’s rules, there is less emphasis on internal equity or fairness relative to the broader workforce.
Structure of Executive Pay Packages
While both countries use a combination of base salary, annual bonus, and long-term incentives, the structure and scale of these packages differ markedly.
In the United States, executive compensation is generally higher in absolute terms, particularly among S&P 500 companies. A large portion of total pay often comes from stock options and performance shares, designed to align management interests with shareholder value. US CEOs may also receive retention bonuses, signing bonuses, and perks (e.g., personal use of corporate jets, security expenses) that are far less common in the UK.
The United Kingdom, especially among FTSE 100 firms, tends to emphasize long-term incentive plans (LTIPs) that vest over three to five years. There is also a growing trend toward simplification of pay structures, moving away from complex, multi-scheme plans toward more transparent arrangements. Moreover, UK companies often have shareholding requirements for executives, requiring them to hold a multiple of their salary in shares for a certain period even after leaving the company.
Shareholder Activism and Say-on-Pay Votes
Another significant governance trend is the rise of shareholder activism in the US and UK. Institutional investors, particularly those under stewardship codes, whether they be regionally or global, have become more vocal about executive pay.
The binding nature of UK votes on remuneration policy gives shareholders significant power over how executives are paid. Shareholder revolts are not uncommon, especially when pay increases are awarded despite weak financial performance or when bonus criteria are considered too lenient. Public backlash and media scrutiny often lead to remuneration policy revisions or leadership changes.
In contrast, US shareholders have less formal power despite active engagement. Even when say-on-pay votes receive majority opposition, boards are under no obligation to amend pay packages. However, investor pressure from large institutional shareholders such as BlackRock, Vanguard, and ISS has led to some voluntary reforms, particularly around clawback provisions and performance metric disclosure.
Cultural Attitudes Toward Pay and Inequality
Cultural and societal attitudes toward pay differ significantly between the two nations.
In the UK, there is a stronger emphasis on moderation, fairness, and social responsibility. Excessive CEO pay is often seen as a reputational risk and a sign of poor governance. The UK’s approach reflects broader European values around equity and stakeholder capitalism.
Conversely, in the US, high executive compensation is more widely accepted, often viewed as a reward for success and innovation. The broader American business culture is more individualistic and tolerant of income disparity, particularly when tied to corporate performance. This cultural difference is reflected in the much higher CEO-to-median employee pay ratios in the US, often exceeding 300:1 in large firms, compared to roughly 100:1 in the UK.
Inclusion of ESG and Non-Financial Metrics
A recent area of divergence is the integration of Environmental, Social, and Governance (ESG) metrics into executive remuneration.
The UK has taken a proactive approach, with over half of FTSE 100 companies incorporating ESG factors into their incentive schemes. These include targets related to carbon reduction, diversity, and employee engagement. Regulators and investors in the UK increasingly expect ESG to be material, measurable, and linked to long-term business strategy.
In the US, ESG-linked compensation is growing but remains more controversial and politically polarised. Some investors support its inclusion, while others—especially in certain states—oppose it on the grounds of overreach or ideological bias. As a result, uptake is slower and varies significantly by sector and region.
Clawback and Risk Management
The UK has established malus and clawback provisions as standard in executive contracts, particularly in financial services. These provisions allow companies to reduce or reclaim bonuses and LTIP awards in cases of misconduct, restatements, or risk failure. Companies are also expected to disclose how and when such provisions are applied.
In the US, clawback policies have historically been weaker but are now strengthening. The SEC’s 2023 Clawback Rule mandates that companies recover incentive-based compensation if it was awarded based on financial statements that are later restated. However, practical enforcement remains inconsistent.
| Aspect | United Kingdom | United States |
|---|---|---|
| Say-on-Pay Nature | Binding vote on the remuneration policy every 3 years; advisory vote on the remuneration report annually. | Advisory vote only, annually, on executive compensation. No binding requirement. |
| Regulatory Framework | Governed by the UK Corporate Governance Code and Companies Act 2006. Additional guidance from the Investment Association and FRC. | Governed by the Dodd-Frank Act (2010). SEC oversees implementation. No corporate governance code equivalent to the UK’s. |
| Remuneration Disclosure | Very detailed: includes pay ratios (CEO vs. median employee), performance linkages, and total remuneration table. | Also detailed, but focused on Summary Compensation Table, grant date fair value, and CEO Pay Ratio. Less emphasis on narrative reporting. |
| Remuneration Policy Vote | Companies must put forward a full remuneration policy every 3 years (or sooner if changes are made). Shareholder approval is mandatory. | No such requirement. Companies can change pay practices without shareholder approval, unless linked to equity compensation plans. |
| Clawback and Malus | Stronger emphasis on clawback/malus provisions, increasingly required by the Corporate Governance Code. Must disclose when applied. | Recently enhanced under SEC’s 2023 Clawback Rule, but enforcement varies. Clawbacks triggered primarily by financial restatements. |
| Stakeholder Consideration | Greater emphasis on stakeholder capitalism and fairness. Remuneration committees must consider wider employee pay and working conditions. | Less formal obligation to consider non-shareholder stakeholders in pay setting. Focus is still largely shareholder centric. |
| Use of ESG Metrics | Widespread and growing. Over 50% of FTSE 100 companies use ESG metrics in LTIPs or bonuses. | Increasing, but less widespread. ESG inclusion more controversial and politicized, especially in certain states. |
| Remuneration Committee Independence | Required by governance code: all members must be independent non-executive directors. | Required under stock exchange rules (NYSE/Nasdaq), but definitions of independence can vary. |
| Typical Pay Structure | Mix of base salary, annual bonus, and >strong>LTIPs (often with performance shares). Shareholding requirements are strict. | Similar structure, but US execs often receive higher equity grants, including stock options. Higher emphasis on total compensation levels. |
| Shareholder Influence & Rebellion | High: frequent revolts overpay packages, especially if performance is weak. Public pressure and media scrutiny are significant. | Lower: shareholder votes are advisory only, and boards often approve pay even after failed say-on-pay votes. |
| Quantum of Pay | Generally lower than in the US, with more restraint in FTSE 100 companies. | Significantly higher, particularly among S&P 500 firms. CEO-to-median pay ratios often exceed 300:1. |
Conclusion
While both the UK and the US share a commitment to aligning executive pay with performance, their approaches differ fundamentally. The UK adopts a more structured, stakeholder-oriented model, with binding shareholder votes and broader social accountability. The US, by contrast, emphasises flexibility, high-powered incentives, and shareholder returns within a more market-driven framework.
These differences are not merely technical—they reflect divergent cultural, legal, and governance traditions. As global investors and regulators push for greater alignment between pay, performance, and purpose, understanding these contrasts becomes essential for boards, investors, and executives navigating international business.
