Ethical investing and CEO pay

How much pay is too much pay? It’s not a question that springs to mind for most of us as we contemplate our own pay slips, but for investors voting on executive compensation schemes it’s a valid point to ponder.

While most investors agree that remuneration awards should be sufficient to attract and retain talented executives, ethical investors also consider broader factors like fairness in pay across the workforce and the impact of excessive pay on social inequality. With CEO pay awards spiralling upwards into the tens of millions, particularly in the US, this article sets out how we’ve tried to identify the point at which high pay starts to raise serious ethical concerns.

Setting the scene

The High Pay Centre (HPC) calculates that the median pay for a FTSE 100 CEO sits at £4.4m. According to HPC estimates, by lunch time on 6 January 2026, the average FTSE 100 CEO had already earned more than the average UK worker (on £37k) would receive all year – that’s 113 times the UK median full time wage. In the US, the pay gap is even wider. Harvard Law School reports that the median compensation for an S&P 500 CEO was $17.1m in 2024, a staggering 632 times larger than US median pay.

It hasn’t always been this way. It’s widely acknowledged, in both the UK and the US, that CEO salaries have increased at a faster rate than that of the average worker, creating a greater disparity of income levels within the corporate sector. For many UK investors, the concern is that US-style inflation in pay is increasingly influencing European norms.

High pay and ethical investing

Like all fund managers, ethical investors want to deliver good investment returns for clients and generous pay awards can help to attract and retain effective management teams. However, we know too that our clients want to see all workers paid fairly, not just those at the top. In addition, many are concerned by the contribution excessive pay can make to widening social inequality, as well as the consequences of allowing extreme concentrations of wealth to accumulate in the hands of a small band of corporate elites.

To address this, we’ve had a voting policy in place for a number of years. Designed originally with the UK market in mind, the guidelines allowed for a maximum pay award of £3m for executives. These limits were debated by our team internally and reflected what we considered to be generous but proportionate levels for UK-listed companies, aligned with stakeholder expectations at the time. In our view, capping pay at this level also served to protect firms’ long-term financial sustainability and guard against negative public relations.

Using this policy in the UK and Europe, we’d typically vote in favour of around 50 – 60% of executive remuneration packages. When we launched our global fund model a couple of years ago, we tried

using the same approach but this resulted in us voting against all compensation schemes at US company AGMs. This is far from ideal. We were concerned that voting continually against all pay awards might result in us being viewed as ideologically-fixed and this could have implications for subsequent engagement with investee companies and their representatives.

Revising our approach

asTo create a more suitable approach, we consulted with our advisory committee and sought views from US asset managers. Our guiding principles for a new approach centred on fairness in pay (e.g. reasonable CEO-worker pay ratios), payment for outperformance and having a hard limit on excessive pay.

As a result, we’re trialling the following guidelines for the 2026 proxy voting season:

For US companies that have underperformed their relevant sector over a rolling three-year period, the maximum executive pay that we will support is $15m.
Where companies have outperformed their sector, we will allow a higher pay limit. This year it’s just over $23m and that’s based on the median CEO-employee pay ratio for the fund. This will be recalculated every year.
Anything above $23m is a straight vote against and we’ll also vote against any pay package where the targets are not clear or not stretching. We also expect to see some ESG metrics in a well-rounded compensation package, such as workforce safety or carbon reductions.

As always when trying something new, there may well be bumps on the road or tweaks that we need to make to the policy. We recognise that these figures will still seem extremely high to many UK stakeholders, but given prevailing US compensation structures, they represent a meaningful downward limit relative to typical S&P 500 awards.

In the meantime, if anyone asks how much pay is too much pay, our answer is $23m, the upper limit of what we will support at present.