Exporting inequality: US investors and the Americanization of executive pay in the United Kingdom

Abstract

Existing studies of the political determinants of top incomes and inequality tend to focus on developments within individual countries, neglecting the role of interdependencies that transcend national borders. This article argues that the sharp rises in top incomes observed in recent years are in part a product of specific features originating in the US political economy, which were subsequently exported to other economies through the global expansion of US-based financial investors. To test the argument, we collect fine-grained micro-level data on executive pay and firm ownership structures for a comprehensive sample of publicly listed firms in the United Kingdom (UK). Our analyses uncover robust evidence that the Americanization of UK firm ownership leads to the financialization of remuneration practices and sizeable pay increases for high-level managers at those firms. Scrutinizing the causal mechanisms underlying this effect, we find them to be more consistent with changes in bargaining power inside firms rather than coercion from outside or exogenous shifts in labor markets for executives. The findings show the disruptive potential of Wall Street investments abroad to empower local managerial elites to capture greater rents and, more generally, demonstrate the need to take the transnational seriously in order to understand patterns of inequality in the global political economy.