Is Pascal Soriot, the chief executive of AstraZeneca, “massively underpaid”, as the chief investment officer of Florida-based GQG Partners, one of the company’s big shareholders, argued this week? Well, of course he’s not. Soriot has been paid £120m over the past decade, which is a helluva sum even for someone who has been brilliantly successful in leading what is now – but wasn’t when he arrived – the UK’s second-largest listed company.
The history-turning moment in 2014, when AZ and Soriot managed to see off a bid from Pfizer’s grim number-crunchers, has probably been worth many multiples of £120m to the UK economy. But such a sum for a single employee in an organisation of 90,000 still looks absurd: Soriot doesn’t do all the work himself.
Yet, equally, one has to concede that AZ does not operate in a vacuum. The point made by Sheri McCoy, the company’s remuneration chief overseeing the proposal to whack up Soriot’s annual maximum pay to £18.7m, has force: if your top operatives are being offered greater fistfuls of dollars by US rivals, which is what she means by “increasing external talent market pressures”, they may walk.
The problem probably isn’t Soriot himself. He will have had many offers over the years but is still in post. Rather, it’s the top scientists – McCoy cited heads of research and development – many of whom will be working in the megabucks US, as two-fifths of AZ’s senior leadership does. There is, in rem-speak, a “compression” issue. If the boss’s rewards act as a cap on what others can be paid, you can run out of “headroom”, to use yet more jargon. One could always invite the boss not to be the highest paid employee, but there’s no chance of that happening in practice.
Of course, AZ could be making it all up about compression – since heads of oncology, and so on, aren’t on the main board, their pay isn’t disclosed – but it’s probably not. It’s not a secret that US executive pay is wild, and becoming wilder by European standards. On that basis, one cannot be surprised that AZ shareholders backed the new, more lavish pay policy by a 64% majority on Thursday. It was a big rebellion, more than a third voted against, but the company got its way.
But here’s the danger in what looks to be a wider attempt by UK plc to play the US card and dare shareholders to say no: in some cases, they’ll be talking self-serving nonsense.
The clearer cases for flexibility and case-by-case judgment are the Brilos, the “British in listing only” firms, as Rupert Soames, the chair of the medical devices group Smith & Nephew (FTSE 100 but heavily US-tilted), has called them. For practical purposes AZ probably falls in that camp too – big pharma is very US focused.
But that still leaves a lot of firms that paddle in US waters, but not to a meaningful degree. One suspects executives at those firms will be eyeing up AstraZeneca’s vote and trying to make a case that they should also be considered exceptions to UK pay norms. If the fund managers have left the door ajar, why not give it a push? That is when the answer should be no.
Then there are those firms who already take their owners for fools. Centrica, owner of British Gas, market cap £7bn v AstraZeneca’s £166bn, somehow thinks £8.2m for its chief executive, Chris O’Shea, was an acceptable outcome last year, even though the bonus element was plainly inflated by the dumb luck of higher wholesale energy prices. O’Shea himself keeps telling us his rewards are “impossible to justify” and are set by the remuneration committee. That sounds like an invitation to vote against the reappointment of Centrica’s entire committee. Take it – a line has to be drawn somewhere.
