Top pay needs total revamp

NO ONE should be fooled into thinking companies are reining back on bosses’ obscene rewards merely because the annual High Pay Centre report shows the average package for FTSE 100 chief executives fell last year.

There is no evidence whatsoever that the drop in payouts is due to any sense of restraint on the part of companies, still less of any sensitivity to the disapproval of shareholders, customers, employees or the wider public.

Pay packages at this level go up and down in waves, depending on when long-term incentive plans come to fruit.

Often, a dip one year is followed by a rise the next, so we will have to wait and see whether there is any real moderation. If the past is any guide, there won’t be.

And what the annual figures ignore is the potential for chief executives to amass serious fortunes over a few years in post.

Analysis by the Daily Mail City team this year found there are a number of near£100 m bosses in the FTSE 100, who have accumulated that sum over many years at the top. They include Rakesh Kapoor, the departing boss of consumer goods giant Reckitt Benckiser, who has taken home £97.6m in eight years, despite several protests by investors. Bob Dudley at BP has made £97.2m in nine years. Jeff Fairburn, who quit as chief executive of housebuilder Persimmon after investors attacked his pay, made £93.5m in six years.

One problem is that these are managers, not entrepreneurs. The vast riches they have reaped do not reflect risk-taking on their part, nor have they built up a business from scratch.

Their pay is also far too complicated. It is bonkers that it takes page upon page of dense print to explain and justify the sums going into their pockets.

The complex cornucopia of incentive schemes and perks should be scrapped. There is no sensible reason executives cannot be paid straightforwardly and simply, with a generous basic salary and a bonus in shares. They could still be very well rewarded, and their wealth would be much more directly tied to performance.

There is a model for this. David Stevens, the chief executive of Admiral insurance group, is one of the lowest paid, taking home just over £400,000 in 2018, an absolute pittance compared with his peers.

He makes just 15 times as much as his average employee, compared with a ratio of 117 times to one across the FTSE 100. He does not participate in complicated incentives – he takes his salary, plus less than £5,000 in pension payments and benefits.

He does, however, have a large shareholding, worth nearly £200m as at the end of last year, accumulated since he co-founded Admiral in the 90s. It has grown as the business expanded to a £6.3bn behemoth.

We shouldn’t begrudge rewards for entrepreneurial success, but too many companies shower managers with unwarranted largesse. Investors should stop pussyfooting and demand a complete overhaul.

Jeff’s legacy

IT SEEMS a fitting coincidence that the high pay report came out on the same day Persimmon issued its half-year results, which bore the scars from the reign of the scandalously over-bonused Jeff Fairburn.

Profits fell as the housebuilder has had to improve its customer service and slow down the sale of homes so buyers were not moving into hurriedly-constructed homes.

A culture of avarice and arrogance damaged Persimmon and that has to change.

Hold on though. The new boss, Dave Jenkinson, was a Fairburn henchman and a big beneficiary of the same incentive scheme that enraged shareholders when Jeff filled his boots. In 2017 and 2018, Jenkinson made £45m and bought a pub. Is he the ideal person to usher in a new greed-free culture?

Sub-prime

DOORSTEP lending, where poor borrowers are sometimes charged interest of more than 1,000pc, is a distasteful business.

But it has been a lucrative one for the bankers, lawyers and PR advisers who cashed in on the failed bid by Non-Standard Finance for Provident Financial.

NSF took a near £13m charge for the costs of its takeover attempt, whilst it cost the Provvy more than £23m to defend itself.

Shares in the two companies – both held by discredited fund manager Neil Woodford, who pushed the dubious merger – have more or less halved in value.

A plague on all their houses.