American executives have long been the highest-paid in the world. The US leads all industrialised nations in levels of CEO remuneration, paying nearly twice as much as UK executives between 1997 and 2003. In recent years, UK CEOs have narrowed the gap, as companies have started adopting the American style of issuing enormous bonuses to select executives, based on performance.

UK CEO remuneration levels
Traditionally, UK remuneration has been fairly low compared to other industrialised nations. However, that trend has started to shift in recent times as more LSE quoted companies, particularly banks and financial institutions, began using a bonus pay structure to reward outstanding performance at the end of each year. Several companies offer pay packages that include salaries, bonuses, stock options and an annual pension.

As an example, the three LSE quoted companies that paid the highest levels of CEO remuneration during 2011 were Xstrata (LSE: XTA.L), Royal Bank of Scotland (LSE: RBS.L) and Lloyds Banking Group (LSE: LLOY.L). Of these, two – the Royal Bank of Scotland and Lloyds Banking Group – have received government bailouts so far. The Royal Bank of Scotland is 83 percent owned by the government, while British taxpayers have a 40 percent stake in Lloyds.

US executive compensation
In the US, financial institutions have been at the forefront of paying high levels of CEO remuneration packages. In 2011, JP Morgan Chase CEO Jamie Dimon was the highest paid banker, earning over $21m in total remuneration that year according to reports. However, the highest amount of CEO pay that year went to healthcare company executives, such as McKesson’s John Hammergren, who received $131m in total pay in 2011. A large portion of Hammergren’s income came from his judicious exercising of company stock options. In the US, company bonuses are generally tied to stock options, which only increase if the company performs well.

Despite the trend of increasing UK CEO remuneration, British Prime Minister, David Cameron plans to cut executive pay packages drastically, particularly for companies in which taxpayers have a stake, and so might undermine competition. Rather than intervening directly, Cameron proposes giving company shareholders the option to veto any proposed bonus payment to an executive, rather than continuing with the non-binding votes shareholders currently possess. While some experts see the action as a positive step toward a balanced economy, others say it could place a strain on corporate development.

In the US, meanwhile, lawmakers attempted to rein in executive pay through the Dodd-Frank Act, which was intended to put an end to outrageous bonus payments, especially for companies that caused shareholders to lose money during the year. However, the law has had only limited success, since companies have merely changed their pay structures from cash bonuses to long-term stock options. As in the UK, the Dodd-Frank Act gives shareholders the opportunity to voice their opinions on CEO remuneration, but the company’s board of directors is under no obligation to follow their wishes when determining executive pay.