Scrimping doesn't pay: UK loses talent to the draw of the US dollar

Calls for bosses to be paid more are predictably met with howls of outrage but business performance is suffering

British business leaders are finding a new home in New York. Getty Images
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Members of Keir Starmer’s leadership team have been taken through the inner workings of government by senior civil servants.

It’s standard, of course, in the run-up to a general election for the opposition to be allowed behind the scenes. It doesn’t mean that Labour is a shoo-in. Nevertheless, the disclosure adds to Tory jitters that their time could soon be up.

Shadow chancellor Rachel Reeves is going out of her way to emphasise not to expect too much from Labour – there simply isn’t the spare cash to go round. But that’s not how it feels for some in the business sector right now. Forget the dangers of wage inflation: FTSE 100 bosses are lobbying to be paid more, saying they’re slipping behind their American rivals. Which begs the question of the best approach to performance and reward?

Meanwhile, Sir Richard Branson stands to receive more than £650 million ($830 million) from the sale of Virgin Money to Nationwide. He will collect £400 million for his 14.5 per cent shareholding. In addition, he will be paid a cool £250 million as an "exit fee" just for the use of the Virgin brand.

While the name is employed for the next four years, he will be paid annual fees totalling £60 million. Then, once it’s ditched, he can look forward to a one-off payment of £250 million.

Proof positive that for all his laid-back persona, Branson drives a hard bargain. Evidence, too, that the careful, meticulous Nationwide, a humble building society after all, is prepared to chuck big money around when it wants to.

In a further sign that large City deals may be back, Elliott, the US investment group, wants to buy Currys, the electrical retailer. It bid £700 million, or 62p a share, for the group. The Currys board, backed by their main shareholders, had other ideas, rejecting Elliott’s approach. Elliott said £757 million, 67p a share. Currys again refused to budge. Elliott has now gone away, since it did not have the requisite commercial information to justify an increased third tilt.

The price Currys would seriously consider? Between 80p and 100p a share. This for a company that was trading at 43p a share before Elliott made its move.

There’s a strange dissonance to it all, of a UK economy flatlining, constant pressure brought to bear upon public spending and others seemingly talking up ever higher numbers. What is really happening is that the UK stock market is ridiculously cheap.

Look at Currys. The firm sold its Greek business recently for £156 million or 7 per cent of group sales. That amounted to 30 per cent of the group’s value, pre-Elliott.

Currys also has another section, the iD mobile network that is worth £350 million. Put that together with the Greek sale and you have the total worth of the entire company. In other words, the UK and Scandinavia, where Currys is also a leading operator, were being priced in at zero, give or take.

Under boss Alec Baldock, Currys has embarked on a new strategy – adding repairs and providing expert advice. It’s no longer a high street-showroom-for-the-internet, the same problem that has befallen other retailers.

It may work, and good luck to him – Britain’s towns and cities desperately require shops that are open and alive. It’s not as if the UK and the Nordics were not generating revenue – Currys enjoys sales from them of £9.5 billion a year.

Yet the City did not care, writing them off as old-fashioned, a "legacy" retailer, offering no future in bricks and mortar.

Elliott saw the potential and effectively alerted investors to what they were missing. The affair, say analysts at J O Hambro, underlines “the absurdity of UK stock market valuations”.

That finds an echo in the Virgin Money deal and the FTSE 100 chiefs moaning they’re not paid enough. While the Branson windfall is eye-watering, that is not the case in other parts of the world.

In the parsimonious UK, we instinctively resent parting with large sums of money to individuals for, as we see it, doing nothing. It buys into our downbeat nature, just as we struggle to celebrate success and frown upon ostentation.

The truth is that Branson has worked for it, albeit in the past when he was establishing the Virgin identity. He may not have to lift a finger to receive the £250 million but he once did and as a result the brand has a reputation and a price.

In the US and places that are more appreciative of underlying value, the Branson payment would not raise an eyebrow.

The highest-paid FTSE 100 chief is Pascal Soriot of AstraZeneca, with a package of £17 million a year. In the US, the top earner is Sundar Pichai of Alphabet, Google’s parent, with $226 million.

It’s a gulf that explains why Britain’s biggest companies are struggling to attract the best talent. They are finding it more difficult to compete. Namal Nawana quit as chief executive of Smith & Nephew, the medical device maker, because it would not match what his US peers were making. Smith & Nephew’s institutional shareholders – UK pension funds – would not countenance it.

As a way round the problem and of hanging on to the highly rated Nawana, the Smith & Nephew board seriously contemplated relocating to the US so they could pay him the higher local rate.

Arguably, a top chief executive in the UK does a similar job to a leading US boss, regardless of being in the same sector. There was Laxman Narasimhan, in the midst of a turnaround at Reckitt Benkiser, maker of Dettol disinfectant, among a range of household staples. He was being paid £6 million a year when two years ago he suddenly left to take charge of Starbucks in Seattle. He more than trebled his pay, securing a $28 million (£21.7 million) package.

Dettol and cups of coffee may seem far apart but the job of running the business that produces them is not.

Britain is ground down, at risk of being held back. Calls for bosses to be paid more are predictably met with howls of outrage from the trade unions and Labour.

They’re often voted down by asset managers and institutional investors who hail from public sector pension funds (although these very same shareholders will vote in favour of higher packages in other countries).

What it means is that London will continue to slip, its stock market no longer the magnet for companies seeking to list. Where are they heading? Mostly to New York, where they appreciate and understand. Funny that.

Published: March 12, 2024, 2:47 PM
Updated: March 16, 2024, 5:27 PM