Cevian urges UK companies to raise board pay to strengthen governance and growt

Activist investor Cevian Capital is proposing a significant increase in remuneration for non-executive directors at UK-listed companies, aiming to bolster boardroom talent and revitalise the London equity market, according to a Financial Times report. Cevian, which holds investments including Smith & Nephew and Pearson, suggests that higher director pay and greater share ownership would enable UK companies to compete more effectively for experienced directors globally.

The firm also argues that performance-based share awards would incentivise directors to bolster long-term corporate success.

Harlan Zimmerman, a senior partner at Cevian, suggests that improving UK company performance is crucial for both the domestic equity market and overall economic growth. The proposed compensation hike comes as London contends with pressures from takeover activity of UK-listed firms and ongoing outflows from domestic equities. Cevian believes stronger boards could enhance the competitiveness of UK companies, making the market more appealing to investors.

Currently, the average FTSE 100 non-executive director earns roughly £80,000 annually before tax, with directors attending about six board meetings annually. However, Cevian contends that the role has grown considerably more demanding due to expanded regulatory and governance responsibilities.

To implement its recommendations, Cevian suggests raising total annual compensation to around £160,000, including shares retained for five years. Companies could potentially increase this package to £240,000 by providing three years of share-based compensation upfront, which would then vest over the subsequent three years. Cevian notes a substantial pay gap between UK and international directors, with S&P 500 non-executive directors receiving an average of about £229,000, nearly three times the FTSE 100 level.

Swiss companies also offer higher remuneration, with non-executive directors earning around 90% more than their UK counterparts, despite smaller market capitalizations.

Cevian attributes this gap to its investment strategy, seeking a larger pool of large, well-managed UK companies. Zimmerman stresses that the pay increase should be coupled with increased board responsibilities rather than merely raising compensation without enhancing the role's demands. Cevian also warns about "overboarding," where directors hold multiple board positions across public companies, with 47 FTSE 100 directors holding four positions and eight holding five or more.

Board Intelligence chief executive Pippa Begg attributes the problem partly to low remuneration, leading directors to take on multiple roles to earn sufficient income. Begg also argues that the pay gap makes board positions less attractive compared to opportunities in private equity.

Cevian's proposals follow consultations with other institutional investors and UK company chairpersons. London Stock Exchange Group CEO David Schwimmer has backed the recommendations, emphasising that companies aiming to compete internationally require boards with comparable global talent and remuneration structures.