Paying dearly for negligence
Assiduous readers of the financial pages will have witnessed the more egregious examples of pay in Britain’s boardrooms as the latest crop of annual reports were released.
Amid the welter of information on remuneration policy, i ncentive schemes, share awards and the rest in the end it is the bottom line, the total amount of pay, awards and benefits in any 12-month period, that counts. And what we have learnt from this single figure is that whatever else is going on in the economy, be it low productivity or the use by some employers of zero hour contracts, with executive pay the trend is inexorably upwards.
What is really astounding, as the research by the High Pay Centre and the daily Mail shows, is that 100 chief- executives earned £496.3m between them last year – an extraordinary figure.
it is the more remarkable in that it follows years of seeking to put the handcuffs on pay with a series of studies on boardroom governance, starting with sir Richard Greenbury’s report in 1995. despite this, the trajectory has been onwards and upwards. instead of being good prudent custodians of shareholder funds members of the remuneration committees have in many cases abrogated their responsibility, leading to obscene settlements.
The departing chair of WPP, former us Ambassador to the Court of st James Philip Lader, defends sir Martin sorrell’s pay of £43m, more than twice his nearest competitor at Royal dutch shell, by saying he is ‘indefatigable’ never a day without client meetings, keynote speeches and social engagements. No doubt he is, and in WPP Britain has a world beating enterprise.
But does that entitle directors to sign off on a £274,000 travel allowance f or the chief- executive’s spouse? such practices are simply outside the norm in public life.
only yesterday the pay committee at BG Group was given a rap across the knuckles by investors with 15pc voting against the re-appointment of chairman sir John Hood for his role in authorising the extraordinary pay packet for the company’s chief executive Helge Lund. Hood and his cohorts did Lund and BG no favours when they signed off on his pay and perks packet of £25m to £31m.
it brought the company into disrepute, undermined support for Lund before he took office and may be one of the factors which convinced Royal dutch shell that BG, with its poor governance record, should be put out of its misery and be taken over. The same pay committee chair Hood, which put Lund in such an invidious position, also chairs the ridiculous committee at WPP that has allowed executive pay and perks to run riot.
The issue of runaway pay for top executives is one for all the political parties. it was way back in 1994 that the late James Hanson famously became the first person in Britain to earn a salary of £1m.
You have to reach down to 95th position on the FTsE 100 to see that figure now. What really set the cat among the pigeons was the sight of executives at the privatised utilities, epitomised by Cedric Brown at British Gas, becoming lottery winners simply because they happened to be running an electricity firm which went public. it was as if all sense of public service went out of the window.
The Tories may have opened the way for more competitive wages in the nation’s boardrooms when they opened up Britain’s free markets but it was in the Blair-Brown years that the most damaging pay rises took place. This may be the reason that we have heard much about millionaire tax cuts and little about the millionaires themselves from Ed Miliband’s Labour. More awkwardly for the Con-Lib Coalition, despite some valiant attempts by Vince Cable to introduce astringent voting requirements, boardroom pay continued to spurt during a period when the incomes of ordinary workers have been squeezed.
ideas such as putting workers on pay committees are worth trying.
But the real villains in the process are back-scratching chairmen and non- executives who refuse to call time on a profligacy that robs us all.
Blank cheque
FiRsT quarter financial results from HsBC look much cleaner than most of its competitors. There are no fines, and charges for bad loans have fallen. The issues for HsBC are all about regulation. it is the main factor behind a 6pc rise in costs. it worries about retail banking ‘ring fencing’ and taxation in the uK and overstretch in tricky markets including Mexico, Brazil and Turkey.
The board under douglas Flint faces some enormous decisions and needs to modernise and reshape itself to meet the oncoming whirlwind.
Style symbols
WHo says fashion is fluffy and frivolous? data from the British Fashion Council shows its total contribution to GdP including supply chain industries and other added value has climbed by £9bn to £46bn since 2009.
All those pictures of Kate Middleton, politicians’ spouses and the growing army of women executives are contributing to our greater prosperity.
How fabulous.