As executive pay packages continue to grow – particularly in the US – investors are questioning whether widening pay gaps support or undermine long-term value creation.
In any case, the risks of excessive executive earnings are becoming hard to ignore. Social cohesion, workforce stability, and political scrutiny all play a part, and present potential risks for long-term shareholders.
But despite widening pay gaps, our clients’ thoughts on fair pay seem to be softening.
In a recent survey, a growing minority of respondents said fair executive pay was “not important”, perhaps showing a sense that the gap has become so large it feels difficult to change.
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The case for big pay
Supporters of high executive pay typically argue it’s necessary to boost innovation and long-term shareholder returns. Elon Musk’s record-breaking incentive package is a recent example.
Sometimes, this approach works. Large, equity-linked pay packages can incentivise founders and senior executives to focus on long-term value creation over short-term results.
In capital-intensive or innovation-led sectors – where leadership quality and strategic vision can hold a huge sway – holding on to star talent genuinely matters for investors.
The risks of a big pay gap
Workforce risk is often the most visible. In 2024, Starbucks’ CEO Brian Niccol received a pay package 6,666 times the median annual pay of a Starbucks barista. That’s the highest CEO-to-worker ratio reported among S&P 500 companies that year.
Combined with increased labour tensions and growing unionisation efforts, it’s easy to see how morale, productivity and staff retention might suffer.
Reputational risk matters too. Details of high profile executives’ earnings often attract public attention and media scrutiny, particularly during periods of cost pressure.
Take Ryanair for example, it’s often faced criticism over executive pay. In 2025, its CEO received a total pay package of around €3.8mn, even with the airline’s aggressive cost-control measures and ongoing pay and working condition disputes with unions.
Then there’s the governance risks that might arise. The Wells Fargo cross-selling scandal is a prime example of governance gone wrong. Fuelled by aggressive internal targets and unwise incentives, employees opened unauthorised customer accounts.
This resulted in nearly $3bn in fines and settlements, along with many questions around accountability and how pay drives harmful behaviours.
In some sectors, political and regulatory risks may also follow, especially where a sector might benefit from external shocks – like UK energy.
BP, for example, has faced increased scrutiny over executive pay amid rising profits, prompting calls for tighter regulation. So far, the resulting windfall taxes have targeted up to 78% of upstream profits, showing how political pressure can affect investor returns.
Nvidia
Nvidia offers a clear example of how well-designed executive pay plans can support long-term value creation. See CEO Jensen Huang’s 2025 compensation package – just 5% of his pay came from a $1.5mn base salary, 9% was a cash bonus tied to performance metrics, and a striking 86% took the form of long-term equity.
Huang’s fortunes rise and fall with Nvidia’s shareholders. His incentives reward long-term success over short-term share price movements, and the company’s health suggests the model works. Nvidia’s meteoric rise has been driven by consistent innovation rather than financial engineering.
Looking ahead, we think Nvidia’s outlook remains strong despite concerns that the artificial intelligence (AI) trade is beginning to overheat. Demand for its AI chips continues to surge, with around $500bn of orders already booked through the end of 2026. The global AI buildout shows no sign of slowing, and Nvidia remains at the centre of the race.
Recent pressure on AI stocks may be justified, but we believe Nvidia has been unfairly grouped with unproven brands. The company remains best-in-class, trades at an attractive valuation, and is our preferred AI name heading into 2026. It’s why the stock returns to our Five Shares to Watch for 2026.
Key risks include shifts in recent months regarding how people feel about AI, and increased competition.
The author holds shares in Nvidia.
Unilever
Unilever is a good example of how executive pay discussions can spark positive change. In 2023, concerns over sharp pay increases led to trouble with shareholders. In response, the company froze its CEO’s fixed pay for two years and committed to a more gradual, shareholder-aligned approach to pay.
Unilever’s decision was a clear shift toward discipline, transparency, and alignment with long-term shareholder expectations. This is not a story of runaway incentives driving instability, but one where investor scrutiny reshaped pay structures for the better.
Operationally, the business is progressing well and the third quarter delivered growth. Developed markets remain challenging, but Unilever is starting to gain market share through stepped-up advertising and sharper brand strategy.
Emerging markets are the key growth engine, with digital initiatives and premiumisation helping to offset tax headwinds and drive momentum. The group’s 30 Power Brands, representing over 75% of sales, continue to see elevated investment.
With gross margins at decade‑high levels, supportive free cash flow, and a 3.7% forward dividend yield, Unilever is a quality business showing clear signs of progress. But softer consumer markets and the execution risks associated with cost cuts and strategic changes mean consistent mid-single-digit sales growth is not guaranteed.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
