While decreasing performance might encourage some to reevaluate company leadership, FTSE 100 medical device firm Smith & Nephew argues that a substantial increase in CEO salary could be the suitable strategy. Despite the company’s shares experiencing a halving in value since 2019, with a loss of 25% in the past year alone, Smith & Nephew proposed a 29% raise in the maximum remuneration package for CEO Deepak Nath, upping it to $11.8 million. Such an idea stirred up controversy, leading to a significant shareholder backlash with 43% voting against it. Nevertheless, the pay increase was eventually authorized.
Smith & Nephew argue that with the international mobility of corporate talent in the globalisation era, it is crucial to provide competitive salaries to retain leading executives. The company has changed CEOs four times in the last five years, with previous CEO Namal Nawana leaving in 2019 due to unmet salary demands. This adds weight to their argument.
Nath, based in the US, has different salary expectations to the UK. This discrepancy is evident in Smith & Nephew’s decision not to increase the salary of its UK-based CFO, demonstrating an acknowledgment of international salary norms.
This paradigm is becoming increasingly accepted among UK investors. In April, the decision to raise the maximum salary of London Stock Exchange Group CEO David Schwimmer to over £13 million was supported by 89% of voters. Similarly, an increase in AstraZeneca CEO Pascal Soriot’s pay to £18.7 million was backed by 64% of voters. It appears that US executive pay rates are heavily swaying these discussions in the UK and Europe, despite any disgruntlement over such high remuneration packages.