Building society – the clue is in the name!
ALTHOUGH a diminishing force, building societies remain an important part of the personal finance jigsaw, providing us with homes for our money and loans for the houses we want to live in.
I was reminded of their positive impact recently when romping around the fells of the Lake District in brilliant sunshine. For one glorious week I parked myself, running shoes and walking boots in Ambleside, right next door to Windermere. Sublime.
Like most towns up and down the country, Ambleside has its issues, including a high turnover of retailers. But being the southern gateway to the Lakes, tourists (come rain, snow or sun) are always roaming its streets.
Ambleside has a winning combination of bed and breakfasts, guest houses, public houses, classy restaurants (Lucy’s, the Old Stamp House and Lake Road Kitchen) and a network of cinema venues (Zeffirellis) ready to come to the rescue when the heavens open – as they do on a regular basis. Yet despite all this positivity, every mainstream bank – much to the anger of local retailers – has now deserted the town. Only Cumberland Building Society remains on its high street, determined to support the local economy it depends upon to grow as a business.
Cumberland is doing in Ambleside what all building societies should be attempting to do – which is to make a difference, be a force for good and provide a rock-solid financial pillar for the communities they serve. But sadly, it is the exception, not the norm. I will write in more detail on the support it gives to local communities in the coming weeks.
While many building societies proclaim that they hold the moral high ground over the banks because they are not subservient to dividend-hungry shareholders, it is often a sham. Like the banks, they are not averse to shutting branches (Skipton) or paying meagre interest on savings accounts.
Nowhere is this sham more evident than in the boardroom where chief executives – come Lake District rain or shine – continue to receive inflationbusting increases in their annual remuneration. Mountains of pay that many customers – borrowers and hard-pressed savers – can only ever dream of receiving. The sums paid, as revealed in our special investigation on the previous page, may not be as eye-catching as the multi-million pound packages received by the bosses of some of the country’s biggest companies. But they are still bound to annoy many building society customers, not just in terms of size but because of how they have been arrived at.
Often, executive remuneration is inflated by six-figure awards granted under performance schemes that should have no place at a building society. These schemes – modelled on executive incentive plans in the private sector – are devised by external consultants and accepted with readiness by remuneration committees appointed to preside over executive pay. Of course they are loved by the executives who benefit from them.
Such plans make a mockery of mutuality. Surely, if the executives of building societies want plc-like rewards, they should either venture into the plc world or do the honourable thing and convert their businesses so that they can then come under the same level of scrutiny as stock market-listed companies.
Given the fact that all societies that went down such a demutualisation route in the late 1980s and 1990s are no longer independent businesses, I doubt any of the current crop would survive for long.
It seems many building society executives want to have their cake and eat it too. On the one hand they like to present their organisations as cuddly, member-owned businesses. But when it comes to their own pay, they want it very much modelled on plc principles. More bonanza than fair.
So, if you are a member of a building society that has just sent you an annual general meeting voting pack, I urge you to scrutinise the accompanying financial statement. If the chief executive’s pay has rocketed and it irks you somewhat, may I suggest you vote against the directors’ remuneration report?
In so doing, you will be sending a message – loud and clear – that you want your building society to be run for the benefit of society. Where local communities such as Ambleside are supported (thank you Cumberland) and customers’ – not executives’ – personal financial interests come top of the pile.
Chief executives are earning mountains of pay that many customers can only dream of receiving