FTSE 100 chief executives 'earn average salary within 3 days'

 

By 5.30pm today (Wednesday 6 January) the average FTSE 100 Chief Executive would have already earned more this year than the average annual salary of UK workers. They only had to work 34 hours to earn £31, 461 which is the average medium wage for full time workers. 

Median FTSE 100 chief executive pay was £3.61m in 2019.

This is 120 times more than average. .

While many would accept that Chief Executives of large successful companies should get decent pay why has this ratio from average to top earner increased from estimated 50 times in 2000 and 20 times in the 1980s? 

A rather strange justification from the Adam Smith Institute for such a massive growth in pay for Chief Executives. Claiming that studies show the negative impact of deaths of CEOs on company share prices? A Vicky Pollard justification for such silliness. Of course a company share price would tend to be negatively impacted if its CEO dies suddenly. 

The Adam Smith Institute ought to remember what their names sake wrote in 1776 about shareholders being ripped off by agents (modern day chief executives) 

All these pay deals for chief executives are voted upon at annual general meetings. ESG advisor PIRC reminds pension trustees such as myself that "There's a pretty easy test for trustees here - check your asset managers' voting records. If they are voting for most executive remuneration policies they are helping to create this outcome. If you don't like what you see, don't let them vote your shares".

I shall look forward to my next trustee meeting

Hat tip BBC, High Pay and TUC. 

No wonder bosses don't want a Labour Government. Pure greed...

We are being taken for mugs. Workers and the share owners of companies (such as pension and insurance policy holders) alike are being ripped off. The father of modern day economics, Adam Smith, (not someone I usually cite and whose book "Wealth of Nations" was alleged to have been always in Margaret Thatchers handbag) warned the owners of companies in 1776 about the danger of Managers ("Agents") taking too much money for themselves at the expense of share owners ("Principles"). 

No wonder we are seeing a backlash by obscenely highly paid Chief Executives against the prospect of a Labour Government.

"Pay for Chief Executives of FTSE 350 companies has increased more than twice as fast as company profits... and around five times as fast as pay for the average UK worker".  Hat tip Inequality briefing.

Royal Mail Sell Off: Rip Off

Quote from the Father of Modern Economics, Adam Smith "A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate."

Responsible Investment: A long view

(this article was published in Professional Pensions 12 September 2013 on behalf of the AMNT. There is a typo at the beginning in the web link)

"When I first became a member representative on a British Pension Scheme in the middle 1990's many advisors and fund managers saw their role as maximising return and had little or no interest in responsible investment.

Ethical or Green funds were dismissed as fit only for tree hugging, sandal wearing muesli eaters. Engagement was something couples did before they got married and most attempts to discuss the social impact of investments were blocked in hushed, reverend tones with the magical words "Scargill v Cowan".

Followed by the explanation that the law forbids any mention of such evil thoughts on pain of instant surcharge. I do of course exaggerate but only slightly.

Since then there has been on the face of things, a profound change in attitudes towards responsible investment and governance. We found out that the Judge who presided over the infamous Scargill v Cowan case had actually hinted in his judgment that pension funds could have an ethical policy.

The report by international legal firm Freshfields in 2005 said not only was it permissible for funds to have an ethnical policy it was arguable their fiduciary duty to do so and trustees could find themselves sued if they didn’t have one! Nearly all investment houses now have (or claim) a responsible investment team.

There is also increasing recognition that pension funds should be focused on the long term and not simply obsess on short term volatility. The concept of “engagement” with companies by shareholders has become pretty mainstream. Schemes have a duty to try and ensure that the companies they invest in are properly run and well managed.

This is not only a duty but self interest. The 18th Century Father of Economics, Adam Smith, warned investors that they will be ripped off by those they employ if they do not play an active part as “owners”. But has it all really changed from “the bad old days”?

Pension trustees were accused of being asleep on duty during the lead up to the financial crisis of 2007. Lord Myners "Where were the owners when these disastrous decisions were taken...?”

How much influence do the corporate governance teams actually have? Is it only a marketing ploy and mere “window dressing”?

BP had a pretty rotten record for many years on environmental issues. So why didn’t investors change the company culture and prevent the Gulf oil disaster and the resulting shredding of billions of pounds of shareholder value?

Have any fund managers or advisors been sacked due to poor performance on engagement? If not, why not?

If responsible investment issues are so important why don’t pension advisors start each trustee meeting with this as their first agenda item?

Why do most managers reports to trustees make no reference whatsoever to Responsible investment?

I think on balance it has been a case of two steps forward and one step back. There is acceptance of engagement even if it is too often noise not substance. So there is still a job of work for trustees to do.

I think that it is easy to blame trustees and to forget how isolated many pensions trustees feel at their meetings. It takes a lot for lay people to feel confident enough to challenge professional advisors and fund managers. Yet this is a fundamental part of our job as trustees.

While we should not be micro managing those we employ to advise us we should be holding them very firmly to account.

Finally, never forget that Responsible investment is actually all about maximising return. Our mantra must be that such investment in companies with good governance will produce superior returns".

(Great picture of Miners Union leader, Arthur Scargill after a visit to a coal mine. Arthur sacked the union's legal team and unwisely represented himself at court in "Scargill v Cowan" case)

"Will no one rid me of these turbulent Member Trustees!"

I've been sent a rather odd and disturbing link to a story here on "Engaged Investor" magazine's website.

In which a pension consultant is quoted as saying he understands that the Government is maybe thinking of getting rid of Member Nominated trustees who sit on Pension scheme Boards???

So who will replace the  representatives of those who actually pay into the pension scheme and act as the owners of their capital? Let me think now? - perchance, more highly paid consultants?

The timing seems most peculiar, since the Government has recently agreed to a significant increase in member nominated representatives (MNR) in the Local Government Pension Scheme and is making promising noises about giving more powers to MNRs in Governance Committees for Contract based pensions schemes and Master trusts. I fully expect the next Labour Government to continue with this process.

I actually support the important role played by professional advisers and consultants in running pension schemes and think many of them are honourable and genuinely want to do the right thing for us. However, there is no getting away from the fact that we have the fiduciary duty to our beneficiaries and they do not.

But as the full article in Engaged Investor makes clear, never forget the reason, why the requirement for member nominated trustees came about in the first place. The picture above is of Bob Maxwell in his famous yacht a year before his death, who stole hundreds of millions of pounds belonging to pensioners.This resulted in legislation that requires at least 1/3 of member trustees make up the Board.

The institution of trusteeship in this country is centuries old and although not perfect is still fit for purpose. Our primary role is to ensure that the money we hold in trust is held for the benefit of the beneficiaries and not be totally ripped off by those who are paid to manage our money. Even Adam Smith (not someone I normally cite on this blog) would have understood this.

In the past some trustees have not been properly trained and supported and have been held back on Boards. The requirement to have member representation and the growth of trustee based organisations such as the TUC Trustee network and especially the Association of Member Nominated Trustees (AMNT) will help counter these problems.  

Anyone who opens a newspaper or who turns on the telly to watch the news, will be aware on practically a daily basis, that we actually need more member trustees and representatives looking after all aspects of our money - not less.

Myners Report: 10 Years On

Last week the Financial Times ran a number of articles on the anniversary of the Myners Report which was published in March 2001. This report was written by Paul Myners, former fund manager, Chair of Marks & Spencer and of course, a Labour finance minister in the last government.

In 2000 Myner was asked to review institutional investments and whether investors were acting in the best interests of beneficiaries.  The poacher turned gamekeeper concluded they did not and made a number of recommendations.

I was quoted here in the article here about the role of auditors and my view that there had been despite Myners a "spectacular failure" by asset owners to stop the Banking crisis.  This was due (in part) to scheme fiduciaries not acting as owners of capital. 

While Myner’s report helped turn me from being a trade union observer on my pension scheme investment panel in 1996 (with no formal speaking rights -I did of course speak, no rights to attend all meetings, to question or to receive information) to being a full voting member of an investment committee. However, this is nowhere near enough.

The banking crisis showed that there is still grossly insufficient governance. Owners of capital (pension and insurance funds) failed to take their responsibilities of ownership seriously and allowed their money to be squandered and even stolen by the managers they paid to be “on watch” and look after their assets. How ridiculous that we continue to allow this? Not only did we lose big chunks of our savings but as taxpayers we then had to bail the banks out and are now suffering huge cuts in basic public services to pay for it.

The dangers of ownerless assets is well known, even Adam Smith warned about this over 200 years ago.  Part of the solution is that trustees and representatives should undertake an in depth management and scrutiny role with our funds.  I compared the role of pension trustees with that of scrutiny panels in local councils, who meet monthly, go on visits, have specialist staff tasked to support them, co-op experts to assist and can call witnesses to be questioned about their performance.

I also gave a plug in the interview to the  Association of Member Nominated Trustees (AMNT) which I think will play an important role in better governance.

The FT concluded with a quote from Paul “You don’t wash or service a rented car because you expect to give it back. I still get the impression that shareholders treat their holdings like a rented car. For the efficient use of capital, that attitude has to change.”