Scaredy cat

I quite like Danny Finkelstein's stuff, but I had snort derisively or something at this bit in a post about the Cass Sunstein book I've mentioned previously:

Let me tell you about one of the most frightening moments of my life. It came when I was at university, spending a week in Blackpool as a delegate to the National Union of Students conference.

Clearly, if that's one of the most frightening things he has witnessed he needs to get out more. He goes on to compare an NUS meeting seeking to expel a group of Tories to a Nuremberg rally. Yes really.

I have two serious-ish points to make. First, it's worth noting in passing that Sunstein describes Mandela as an extremist in the book - but one with a valid cause. He also talks about 'good extremism'. And obviously the Finkster's terrifying experience with the NUS was directly related to the anti-apartheid cause. I'm not saying that this excuses the behaviour he describes, or that Sunstein provides justification for it either. Just it's a bit odd that he doesn't make this link.

Secondly, though I regard myself as a moderate lefty, I found this bit of his post really annoying:

I believe that the work, and now the life, of Cass Sunstein provide a lesson to political moderates. The views of individuals change when they are part of groups. Certainty becomes greater as theories are corroborated, people gather information that confirms their earlier views, and group members seek approval from others. All this pushes individuals farther in the direction they were already inclined to go. Professor Sunstein calls his book Going to Extremes, but group polarisation means that a mildly centrist group would become more resolutely centrist.

What I don't like about it is the implication that being a centrist is the same as being a moderate. There are two problems with this in my opinion. First, being a centrist (as in somewhere between Left and Right) does not at all mean that you are a moderate. If both Left and Right agree on immigration controls, and you plant your flag between them, that doesn't make you a moderate on the issue in general, it just means you have split the difference between two dominant views. Also what about historical drift? What was the 'moderate' position on a sensible level of public ownership of industry 30 years ago, and what is it now? The moderate if they are a centrist will have just floated on the surface as the tide of this debate shifted.

Secondly, and more importantly, this idea of left/right/centre is generally pretty hopeless because it encourages people to think that these concepts sit on a map with almost measurable distances between them. It is a really unhelpful metaphor. The clustering of sometimes inconsistent political beliefs around the poles of Left and Right should tell us that it is not that simple. Centrists can be extremists too, and not in the sense of extremely moderate.

Interesting blog alert

Come across this one via Charlie. Economic sociology seems to be a major focus. Interesting stuff.

MUSICHASNOMEANING

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A final bit of Blair-ism

I mean this one, not this one. Here's a snippet that has relevance to the sorts of ideas Paul Myners has been toying with:

Companies should be free to experiment with alternative securities and contracts with their suppliers of finance capital that allocate risk, reward and control in new ways. Firms should be able to issue securities with voting rights that vest over a period of time, for example, or provide for more than one vote per share if held by employees or other stakeholders. Once issued such securities, as well as more ordinary securities, should not be subject to unilateral or arbitrary changes in voting rights or other claims unless the initial registration statement explicitly notes that voting rights could be changed unilaterally. In other words, voting rights should be honored, but there should be no prohibitions against particular contract terms. If outside investors are leery of these securities, companies may find they are a higher-cost source of capital and avoid them. But companies might also find that the motivational effects of giving certain stakeholders special voting strength outweigh the negative effects of a higher cost of capital. Investors might even find that investing in companies where employees act like owners and exercise considerable control entails less risk than investing in firms whose managers have no monitors other than anonymous financial markets.

L&C response to the IoD response to the TUC

I just spotted this press release on the Institute of Directors website responding to the TUC. It's dated 11th September, so presumably it is a response to the TUC's Pensionswatch report which came out that day. This is an area I know fairly well, so I thought I'd take a look at what the IoD says. Here's the killer quote:

“The majority of directors can only dream of a generous retirement pot. Our recent survey shows that only one in seven IoD members have gold-plated occupational pension schemes, compared with six in seven in the public sector.

And here's the text below that explains it a bit more:

In February 2009, the IoD carried out a survey of 980 IoD members. It found that, contrary to myth, most directors do not have gold-plated company pensions. Almost half (45%) have no occupational or employer-sponsored pension scheme at all. Just 12% of directors are members of defined benefit schemes, the same proportion as in the private sector as a whole and compared with membership of defined benefit schemes in the public sector of 90% of employees.

First point - the TUC report doesn't claim to provide a picture of all directors' pensions - it is explicitly focused on the UK's biggest companies. In contrast the IoD claim here does not tell us what the sample used was. To state the obvious, if the IoD's survey did not cover the same or a similar sample it is not surprising that it came to a different conclusion. It's like comparing a survey of the big supermarkets with a survey of all retailers. It's clearly not a valid comparison or any kind of rebuttal.

Second point - we don't know how the IoD figures were arrived at. Looking back at the original release they issued in February on the survey we don't know what the response rate was, who was targeted etc. The TUC survey is of companies annual reports and they state in the report how many reports provided usable info. So the data is a matter of public record. In contrast the IoD's survey may well suffer from a self-selection bias. Directors who still get a DB scheme might not want to publicise this, whereas directors who only have a DC scheme, or nothing at all, may feel more reason to respond, especially to a survey which was primarily intended to bash public sector pensions, again.

Third point - actually there is another survey out there that looks at almost the same sample as the TUC's - it's done by Lane Clarke & Peacock, and the latest one is here. And guess what - it's findings on things like proportion of directors with DB schemes, average contribution rates etc are almost exactly the same as the TUC's. It is therefore entirely valid to say that directors of the UK's biggest companies have by far the most generous pension provision, gold-plated if you like, and that this is not simply a result of their higher salaries.

Fourthly, let's have a look at this claim that 45% of directors have no pension at all. Well actually, both the TUC and LC&P also found that an increasing number of directors are not offered, or do not join, a company pension scheme. But in most cases in their sample these directors are offered a significant cash payment in lieu of a pension. It may well be the case that a number of the 45% of directors the IoD says don't have a pension have something similar. Needless to say, for other employees such rules do not typically apply. If you don't get offered membership of a pension scheme, that's tough. If you do get offered but you don't join, again that's your decision and the company does not compensate you (except perhaps if you are part of a flex benefits scheme). And it's also worth noting the value of some of these payments in lieu - they seem to typically be in the 20% to 30% of salary range, but some are much higher.

There are a couple of points in the IoD's defence, sort of. First, it's a reasonable argument (though the IoD doesn't make it) that just looking at the FTSE100 doesn't tell you very much about directors' pensions as a whole. But nonetheless this doesn't alter the fact that there are hundreds of directors with pension provision far more generous than that available to anyone else in the UK - so it's simply wrong to state that it's a myth that directors get 'gold-plated' pensions (and some would clearly be more expensive than gold-plated...).

Second, it's clear that directors along with other employees are being shifted from DB into other provision. But the TUC survey acknowledges this, and more importantly even when this shift occurs directors at the biggest companies get very generous provision under the new arrangements - much larger DC contributions as % of salary, or these big payments in lieu I mentioned previously.

Tackling extremism on remuneration committees

There's a policy idea that unions have floated a few times in the past and that has come up once or twice in the financial crisis (Paul Myners touched on in it one speech) that I've always liked - putting some sort of employee representation on remuneration committees.

These committees, according to the Combined Code, are supposed to be sensitive to pay and conditions across the company when setting pay, yet many still manage to keep deciding that The Only Way Is Up for directors, even when cutting staff. The idea of having an employee rep on there would be to bring a bit of balance to discussions. Naturally enough, it is the sort of idea that most governance people in the UK would laugh at.

But there might be some evidence that actually it isn't a bad idea. Cass Sunstein's new book Going to Extremes is all about how people's views become more extreme if they are in groups of like-minded people. Groups of Democrats become more liberal when they talk together, Republicans become more conservative. The decisions these groups reach are more extreme than the views of the individuals that make them up had previously. The book details the real world effects of the this - juries reaching very different decisions depending on who is on them etc.

Sunstein says that this has obvious implications for business - particularly where board members reinforce each others' risk-taking mentality. And it does suggest that the notion of having independent non-execs on the board to provide challenge is therefore well-grounded.

But it also made me think of remuneration committees. Although these obviously have independent representation on them as best practice, what would seem to matter more is the committee members' attitudes to remuneration practices. Even if they are notionally independent, if they all share the view that you need to pay serious wedge and not quibble over large demands then surely they are likely to reach 'extreme' decisions on pay? (I mentioned this to a colleague at work and he immediately came up with the Dick Grasso case - the members of the compensation committee all being senior Wall Street figures).

So if we accept this basic line of argument, wouldn't it make sense to get someone from the shopfloor, even a TU rep, at least feeding into the remuneration committee, in order to try and disrupt the potential tendency to reach extreme decisions? (And thinking much further ahead, it would be interesting to research NEDs' views on remuneration, and see what the outcomes have been at rem comms where they sit with others with like minds).