Out-Law News 2 min. read

UK CEO turnover rate among world's highest


Chief executives of UK companies move on from their positions more frequently than in most other parts of the world, but are less likely to be forced out of their jobs for an ethical lapse than in many other countries, according to new research.

According to the 2016 CEO Success Study released by PwC's strategy consulting arm, the chief executive turnover rate for UK companies was 16.3% last year, higher than in any other countries except Brazil, Russia and India.

However, just 3.3% of UK CEOs were forced from their roles last year. Globally, forced turnovers of chief executives due to ethical lapses rose from 3.9% of all successions between 2007 and 2011 to 5.3% in the 2012–16 period - a 36% increase.

PwC attributed the rise to a changing world with greater scrutiny of large corporations by the public and authorities, the use of digital communications meaning negative information travels more quickly, and the more globalised business market environment.

Chief executives of businesses in the BRIC countries (Brazil, Russia, India and China) were more likely to be forced out than counterparts in developed countries, according to the study. The forced turnover rate in BRIC was recorded by PwC at 8.8%, up 141% from the previous five-year period.

Although chief executive turnover rates in the UK remain high, the rate fell from 19.3% in 2015 to 16.3% last year. The turnover in the UK was more likely to be due to a merger or acquisition than in other countries, with 4% of chief executives of UK companies  leaving their roles in such cases in 2016 compared to 2.1% worldwide.

Chief executives in the UK also spend less time in their roles than in other countries. The median tenure for an outgoing chief executive in the UK was just 4.8 years last year, falling from a high of 8.3 years in 2010 and well below the 2016 global average of eight years.

Employee incentive expert Suzannah Crookes of Pinsent Masons, the law firm behind Out-Law.com, said the high turnover rate for chief executives in the UK needed to be taken into account when companies were looking at executive pay.

“For those looking at the design of executive remuneration UK with a focus on longer-term alignment with shareholders, this will certainly be a consideration,” Crookes said.

“Recent governance best practice has led to long-term incentive plans with a typical vesting and holding period of at least five years. This survey indicates a median tenure of less than five years at this point, and so the operation of holding periods and share retention guidelines for departing executives, which have already started to come under greater scrutiny, will perhaps be areas of particular focus,” said Crookes.

The PwC study also looked at incoming chief executives. It found new company leaders in the UK were slightly younger than the global median of 53 years, with 52 the average age in the UK. They are also the least likely to have stayed at one company for their entire careers, with 94% of newly-appointed UK chief executives bringing experience from other businesses compared to the global average of 74%.

Women accounted for 7.3% of incoming chief executives in the UK in 2016, up from 4.5% in 2015.

According to PwC's study, UK companies have been appointing a higher share of UK nationals as chief executives over the last five years. Last year 85% of new chief executives were from the UK, up from the five-year low of 59% in 2013.

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