National Express - 6 kids die but CEO still gets 7 figure bonus. Wtf?

A sensitive and thoughtful commentary below by Tom Powdrill on his blog "Labour & Capital" about the many governance dangers of paying huge "performance related" bonuses to Chief Executives. 

National Express of course has been warned on numerous occasions on this blog and others about the dire health & culture in its USA school bus arm. 

Did the CEO of National Express actually do anything about this? 

No wonder so many people in the UK and the USA hate the "establishment" and vote for extremist politics. 

Internal logic versus external stupidity

"I've blogged about National Express a few times over the years, mainly in relation to its anti-union activity. But today a story in the FT about its executive pay arrangements caught my eye. I think it's a great example of why performance-related pay is a colossal waste of time, including trying to tie pay to ESG targets.

As many people may know, there was a tragic accident in the company's US school bus business last year in which six young children died. This is clearly pretty much the worst safety outcome a company that transports children can have.

Understandably, therefore, the company has reduced to zero the amount of the chief executive's bonus that is tied to safety. But, he's still going to get the rest of the bonus, which equates to over 150% of salary. Some shareholders are ticked off, and think that the company should not have paid any bonus at all, sensing that a chief executive getting a seven figure bonus in the year when the company suffered multiple child fatalities is not a good look.

To me, this sort of outcome is the inevitable outcome of the performance-related pay delusion. If you set multiple targets for variable pay you are always going to get these kinds of perverse outcomes. If you've hit your financial targets but there have been fatalities then simply not awarding the bits of pay tied to ESG criteria is logically what you should do. But it looks appalling. Applying some common sense has its own problems - for people within business/finance at least. If you scrap the bonus entirely (which is what I think they should have done) then it makes plain what a joke the system is - it is incapable of delivering sensible outcomes.

This isn't the first time this has happened in relation to fatalities involving a PLC. The CEO of Thomas Cook got in a similar mess by giving up some, but not all of her share award. To try and stick to a logical/statistical approach merely invites the question "so how many people would have to die before you didn't take any bonus/share award?". Companies - or investors - that simply hide behind the incentive design look inhumane.

There was a similar example with News Corp when the hacking scandal blew up - with James and (I think) Rupert Murdoch agreeing to give up some, but not all, of their bonuses. And, more generally, when there is a lag between performance and reward (because shareholders have asked that reward be tied to slightly more long-term performance) you get examples when exec awards vest despite performance having subsequently turned bad again.

I know I am well out of step with many ESG people here, but to me the fundamental problem is the insistence on performance-related pay. Quite aside from motivational issues, perverse incentives and the whole question of why the most highly paid need or deserve further incentives to get them to do their job, performance pay generates these ridiculous outcomes. They make sense according to the text book internal logic of incentive schemes but they look terrible to any half conscious actual human being. Instead of wasting even more time trying to tie ESG criteria to pay we should be scaling back variable reward if not scrapping it altogether.

ISS backs Teamsters union over motion 22 at National Express AGM 5 May 2015

Check out  Tom at "Labour & Capital" about some rare and sensible support about encouraging a company to do the right thing for workers, customers (school children in this case) and shareholders.

"Big news tonight (29.4.15) - the FT has reported that the major proxy voting adviser ISS has recommended that shareholders vote FOR Resolution 22 at the National Express AGM next week. PIRC has also recommended a vote in favour.

Resolution 22 calls on the board to commission an independent review of practice in Durham School Services, its US business. This follows repeated complaints from employees about management interference with workplace rights.

To my knowledge, there have been six shareholder resolutions at UK companies in the past ten years that focused on labour rights in one way or another. I don't think ISS has previously recommended a vote for any of them, so this marks a significant shift.

Many large shareholders may share the ISS view that the review proposed in the resolution is not an onerous demand. They may also feel that the board has allowed this issue to drag on for long enough, and action needs to be taken to address it and then move on.

Anyway, it set things up nicely for next Wednesday's AGM."

"Broken Commitments, Vulnerable Workers" - Human rights violations by National Express PLC

Find out below what happened when two British MPs were invited by low paid and exploited workers to find out how they were treated by their British owned employers. 

On May 6 it will the National Express AGM. If you have a funded pension or insurance policy contact your administrators and urge them to make sure that their fund manager supports resolution 22. 

"Ian Lavery and Jim Sheridan went on a fact-finding mission to to investigate labour rights violations at National Express Group operations in the United States.

We embarked on our trip to the United States to learn first-hand about UK based National Express Group’s North American school bus subsidiary – Durham School Services. We endeavoured to hear from Durham school bus workers and management, parents, school board of education members, elected officials, community organizations, labour relations experts and trade union representatives. 

While we went to Charleston, South Carolina and Memphis, Tennessee we also spoke with Durham workers from Jacksonville and Santa Rosa County, Florida; Grey’s Lake, Illinois; and Albuquerque, New Mexico.

Based on our investigation we produced a report and also set forth recommendations to address the deep concerns we have with Durham School Services.

Click here to download a copy of the full report."

See previous post here

"Broken Commitments, Vulnerable Workers" - Union busting by National Express continues

On Tuesday morning I attended  another presentation by US transport union, the Teamsters, to pension funds on the anti-union practises by a National Express owned US company called Durham which runs schools buses.

The Chair of the Local Authority Pension Fund Forum (LAPFF), Cllr Kieran Quinn, opened the meeting and made it clear that while he has a union background, as an investor he has concerns about the financial prospects of a company, that appears not to treat its workforce properly nor provide a safe environment for school children. He has had a number of meetings in the past with National Express where he has been told that the unions have exaggerated the problem. However, when he has asked for proof of this they have never produced this information.  

Teamsters spokesperson, Louis Malizia, was even more blunt. The "poisonous" and "unsustainable"  anti-worker and unsafe business practises will put the company at risk. He described the union busting and black-listing activities condoned by National Express. How union activists are victimised for reporting safety issues and the company continues to ignore decisions in favour of the union by the US courts. The company is now facing a backlash over civil rights and is losing contracts.

The final two speakers were two British Members of Parliament, Ian Lavery, MP, and Jim Sheridan, MP, who had both gone over to the US on a fact finding visit. During this visit they spoke at community meetings, met school bus drivers and were interviewed by US press and television stations. They were also thrown out of a local bus depot run by Durham when they tried to visit.

Jim Sheridan, MP, asked why doesn't National Express operate in the same way in the US as in the UK where they have usually good relations with the unions? Why are they treating children's safety differently? Why are they putting profits above safety? This is not some sort of "Communist plot" but about safety. No-one wants "revolution" they want a "resolution". Other bus companies in the US recognise trade unions, run safe services and make money without exploiting people.

Ian Lavery, MP, spoke about the unacceptable and unsafe US school bus services that would just not be tolerated in the UK. The bus drivers are poorly paid but do a very responsible job. He is a former Pension trustee and understands the need to make money to pay for pensions but there has to be a social conscience. Ian introduced a report that he and Jim wrote about their visit that they are just about to publish called "Broken Commitments, Vulnerable Workers".

In the Q&A I made the point that not exploiting people is not just about having a social conscience it is also a good investment choice. Research shows that long term investors such as pension funds get better returns from investing in companies that have good governance and do not for example treat their workers badly. Also, why doesn't National Express engage with its shareholders such as LAPFF? What else are they hiding?

"You Cannot Pick & Mix Which Human Rights to Respect" National Express LAPFF14

The President of the USA Teamsters Union, James Hoffa, sent a video message to the LAPFF conference to thank them for our support in their campaign to stop the North American arm of British company National Express's union busting.

Teamster Louis Malizia then explained to the conference more about the low pay & exploitation by National Express of school bus drivers as part of an "International Activism" debate.

He pointed out the reputational risk to the company from such behaviour and the considerable USA litigation risks from commonplace breaches of Labour law and health & safety legislation.

In the Q&A I made a contribution that there are Ten United Nations Universal Principles of Human Rights. Responsible investors have to respect all Human Rights and this includes Principle 3 regarding trade unions - "Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining".

My point is that you cannot "pick and mix" which particular Human Rights you want to uphold. You have to uphold all of them equally. I hope that National Express and other rogue employers such as the Board of UK Catalysis Housing Association, will understand that if they do not uphold all human rights - then they run the obvious risk that they will be accused of not respecting human rights.

Engagement Panel at LAPFF14

The next item at the Local Authority Pension Fund Forum (LAPFF) conference was a panel on  "engagement" with Cllr Kieran Quinn GMPF, Chair Sir Merrick Cockell, Cllr Richard Greening LBI and Cllr Cameron Rose LPF.

Investor engagement is probably one of the most significant things that LAPFF does on behalf of its members. "By bringing local authority funds together to work collectively, the Forum is able to maximise their influence" .

Cllr Quinn started by pointing out how important it was for investors to engage and keep an eye on  all the companies they invest in - who would have expected Tesco's to have behaved in such a way? Trinity Mirror refused to accept that they had a problem with the Hacking scandal but all the information from "Hacked off" proved to be true. How could Barclay's justify giving three times as much money in bonuses as they returned to investors?

One of the most positive engagements he experienced was after the Rana Plaza garment factory collapse in Bangladesh when reputable companies were coming to us to explain what they had done and what they were planning to do. There was no investor rush to exist Bangladesh which would have not helped.

Sir Cockell pointed out that with engagement "you may lose the vote at Company AGM but still win the argument"

Vice Chair of LAPFF, Cllr Rose discussed the engagement he has had on Carbon risk with the UK major oil majors and the fall out from falling prices.

Cllr Geening talked about how engagement can take time and be difficult. Such as the lack of progress with National Express on their anti trade union activity in the USA. Management don't think there is a problem. However, it took time for similar issues to be dealt with at First Bus and engagement did eventually work.

I raised a question to the panel about whether they would support disinvestment in a company as a last resort if engagement failed?

The panel response was as a very last resort they would consider disinvestment but it would have to be at the very end of the road. The whole purpose of engagement is to change company behaviour and if we walk away from a company then it won't necessarily change anything.

There was a good point made about what would be the future of engagement if the LGPS was forced to invest only in passive (tracker funds) and therefore could never disinvest.

National Express - Union busters and Blacklisters?

On 14 May it is the Annual General Meeting of British PLC National Express.

US transport trade union, the Teamsters, are calling for share owners to vote for Resolution 22 which calls for "improved oversight and reporting of human capital policies and practices". 

This relates to an ongoing dispute with the US School bus business owned by National Express called Durham School Services. 

While in the UK National Express has on the whole a positive relationship with British trade unions,  in the US it has allowed local managers to be trade union busters and blacklisters. This has a reputational risk to the brand and value of National Express. Especially when trade union members have been victimised for exposing health and safety concerns. 

In the UK there has been a campaign to "Blacklist the Blacklisters"  and to boycott companies in the UK who blacklisted workers for their trade union activism. 

I note in the US that National Express has been accused of "disparate treatment, discipline and discharge of employees engaged in union organizing; alleged illegal surveillance of workers engaged in union activity; and allegedly threatening workers with reduction in benefits, working conditions and the loss of employment for supporting unionization".

I think this is also Blacklisting and National Express runs the risk that they will be added to British list to be boycotted by responsible public and local authorities.

Check out this post I did last year on the risk to our pension investments from investing in National Express. Didn't the huge losses we took from investing in BP teach us anything? 

Picture above is of US School bus driver, Diane Bence, explaining to a meeting last month of Pension trustees and journalists, how awful it is to be employed by a bullying, disrespectful employer who takes risks with children's safety. 

On the left was Louis Malizia from the Teamsters who pointed out that if National Express wanted to expand in the US then they will have to compete for contracts in areas which have strong trade union membership. If they are seen as "anti-trade union" then it will make it much harder for them to win contracts from local School boards.  By being so anti-union they are cutting their nose to spite their face.

This meeting was chaired by Cllr Kieran Quinn (middle) who chairs the Greater Manchester Pension Fund and the Local Authority Pension Fund Forum. He pointed out that he had asked National Express to publish their safety data if they have nothing to hide? But they keep ignoring his questions. 

I said at this meeting that this failure indicates a wider governance concern about the Board of National Express. Surely after the BP Gulf disaster investors need to wake up to the risk from investing in such companies?

UPDATE: sign the ShareAction petition here

National Express & the pension fund risk of it killing American children?

This morning I went to a breakfast seminar in London run by the North American transport trade union the Teamsters. This was before the start of the annual Pension Governance conference run by PIRC

The collection and return home of school children by the iconic yellow buses is a huge business in the USA.  There are 500,000 such buses transporting 24 million students per day.

What the Teamsters are concerned about is the USA arm of the British listed transport Company National Express (Durham School Services).

Which is accused of not only treating its school bus drivers very poorly as employees but also consistently breaks health and safety rules for its staff and student passengers. Who often have to endure overcrowded, badly maintained and potentially unsafe buses.

The Teamsters had brought two of their actual yellow school bus drivers to the UK to speak to us about the awful, bullying, nasty and unsafe work practices they have to endure. They told us first hand of their unacceptable experiences while working for National Express in the United States.

Not only were they treated with contempt and disrespect by their management, it is also clear that the safety of drivers and the children is at risk due to overcrowding, defective and poorly maintained equipment, worn tyres and drivers forced to work despite being ill.

The National Express model is to win school bus contracts by the lowest price tender and then make profits by cutting wages and maintenance to the bone and beyond.

This is a disaster waiting to happen. Apart from the absolute morale argument that we do not want   companies we invest in on behalf of our pension scheme members to act in such a way, nor do we want them to face the risk of legal or even criminal action.  There is also ongoing financial reputational risk to the company for being such a poor and irresponsible employer.

The USA has a reputation as a litigious Country. If there was to be a mass tragedy on a yellow school bus which had been previously reported to be unsafe or if the driver was sick but had been forced to work to save his job you will expect at the least a massive law suit.

The experience of the disaster in the Gulf with BP tells us that safety should be a key issue for UK pension trustees. As asset owners it is in our own long term interests to contact our fund managers and make sure that they investigate these complaints.  Then they need to take action against National Express to make it act in a responsible and safe way.