Thursday, 26 February 2009

Goodwin's pension

There are a few issues tied up in the hoohah over Fred Goodwin's pension. Much as I think the size of many company directors' pensions are completely unjustified, I'm wary of the demand to unpick contractual arrangements, because it may be thin end of the wedge. In short my worry is that if we set a precedent it may get applied further down the food chain when someone is said to have 'failed'.

However, in this case the principal issue as far as I can see is that (if the reports are accurate) he has got an unreduced pension at 50, when the scheme's normal retirement age is apparently 60. If that's the case then this was a serious failure by the company's remuneration committee, and I'm gobsmacked that they suggested it or let it go through. It's also almost certainly not contractual and as such not forced on them. So why on earth should he get any sort of sweetener? This is surely further evidence of just how badly boards have become infested with self-serving attitudes in respect of remuneration. I'm actually less surprised that Goodwin has said he won't voluntarily give up any of his pension.

More broadly, whilst £650k a year is a serious wedge, it probably wouldn't put Goodwin in the top 5 in terms of the highest annual pensions for directors of FTSE100 companies. There's another problem here - the continuing differential treatment of pensions for staff and directors in the same companies. In some companies directors get a better accrual rate in DB schemes, or a better contribution rate in DC schemes, or massive payments in lieu of a pension (50% plus of salary for a couple of directors at HSBC for example). There is absolutely nothing to stop remuneration committees changing these arrangements so that future accruals/contributions are made on the same basis as for other staff. And there should be a maximum limited on payments in lieu.

Unfortunately to date institutional investors have (surprise!) shown very little interest in this differential treatment. Let's hope that, now they are under pressure to up their game, institutions crack down on this unjustifiable double standard.

18 comments:

CharlieMcMenamin said...

I take your point about a principle being established only to be misused against 'our side', but surely it's time for a 'show trial'. Goodwin is the man in the frame.

Sometimes you need a test case to reveal exactly where society will not longer tolerate anti-social behaviour. The value in attempting to claw back his pension - or most of it anyway - lies precisely in the sobering effect it might have on others, including on the renumeration committees you castigate.

zedman said...

While casting aspersions on the remuneration committee, don't forget to add the government negotiators, including Myners, who should have been aware of the pension deal for Goodwin. If they weren't it was negligent due diligence. If they were - as Goodwin alleges - then they were naive in thinking it wouldn't generate the negative backlash.

Matthew Cain said...

That's a really thought-provoking take on the issue. My (uneducated) view is that the government, as an institutional investor, is acting particularly badly on this issue: http://blog.matthewcain.co.uk/government-bullying-fred-the-shred/

Tom P said...

It's a tricky situation no doubt. Whilst the govt wasn't a shareholder at the time the deal was done I think there's a case to be made that since it was so involved with discussions about the bank's future then it should have kept a close eye on things. On the other hand, it does sound like the board spun things as though they were only honouring contractual obligations. Perhaps the moral is that no-one should take anything that directors of banks say at face value. Goodwin meanwhile still intends to hang onto his £650k a year.

zedman said...

I could be wrong but the coverage I have heard today is that the deal was that Goodwin agreed to forego his salary claim in exchange for the pension arrangement. Since his departure was directly at the behest of the government, it surely wasn't left solely to the board to agree?

Nick Drew said...

I'm with Zedman @ 7:29; Myners was specifically set on to bring the relevant experience to the party

curious how financier-Myners waves through financier-Fred's handsome payout

by contrast, the question of payout to Sharon Shoesmith was a matter of Cabinet discussion, we are told

BTW, foregoing a claim for a year of salary for the pension that was on offer, was surely a rather simple decision: Deal, please, Mr Banker !

Tom P said...

I'm still not convinced there's a big case for the govt to answer here (though obviously I'm a bit biased!)- lots of shareholders were actually pushing for Goodwin to go too, so it's not like the government was the sole reason for his removal. (I think we can take it as a given though that non-governmental shareholders acting alone would have failed to get him to give up much if anything).

I'm not saying the govt has played a blinder, but I still think the primary responsibility for this situation lies with the RBS board and its rem committee. This is what they are paid to do, and that's what the rem committee is there for.

Otherwise the argument seems to be that the govt was naive to take what the board said at face value, and should have been more hands-on even when it wasn't a shareholder. Fair enough, but that 's an argument I'd usually expect to hear from people further to the left of me ;-)

Tom P said...

PS Zedman I just spotted your comment on my older post about stock-lending - yes would definitely be interested in any futher info.

zedman said...

It's not mine to share publicly, so if you send me a message at roy@stocklendingtoday.com I will give you more information.

Tom P said...

PS Nick, I just got a copy of the Concept of Mind by Gilbert Ryle because waaaay back you mentioned him in a discussion about machine metaphors. looks interesting!

Tom P said...

Hi Zedman

tried to email you - did you get it?

Tom

zedman said...

Hi Tom, I got your message and sent it through Saturday night. I will resend in a minute.

zedman said...

Mornging Tom, did you get it?

Tom P said...

no joy - I'm sure it's a problem my end. try this - tomp@pirc.co.uk

zedman said...

Tried it again. 8th time lucky? LOL I hope it's worth it in the end.

Tom P said...

got it - thanks!

zedman said...

Let me know if you would like to discuss it. Were you on the IR webinar today?

Tom P said...

nope - still on paternity leave (last day....)