Tuesday 31 January 2017

A corporate governance agenda for the Left

1. Explicitly remove shareholder primacy from the UK system. This should be argued on the basis that it hasn't worked, the shareholder base has changed too much to make the model work for the public (shareholders now primarily split between the City - which is conflicted - and overseas investors), and shareholders do v little in exchange for their rights in comparison to employees. This means rewriting directors' duties - why not just promote the success of the company, as the TUC has suggested? - and the UK Corporate Governance Code.

2. Remove corporate governance from the FRC's remit. This is too big an issue to fall under a financial regulator. There should be a permanent Corporate Governance Committee compromised of representation from managers, employees and investors. And no-one else. No lawyers, no accountants. This committee should oversee the UK Corporate Governance Code and revisions to it.

3. Create a specific companies regulator. This would have the functions of mandating and reviewing disclosures on ESG issues and overseeing complaints from all stakeholders about company behaviour. Perhaps it could also house the UK National Contact Point for OECD complaints?

4. Make worker representation on boards mandatory for all companies. Also institute mechanisms for all companies to share the wealth created with those that actually create it - profit-sharing and employee ownership, yes, but also collective bargaining.

5. Overhaul executive pay: reduce it to salary plus one incentive scheme as a starting position. Initiate a review of evidence relating to the use of performance-related reward for executives, including behavioural evidence. If the evidence is not compelling that performance pay works, cap incentives at much less than 100% of salary or scrap them entirely. Require disclosure of internal pay ratios, with the objective of moving towards binding maximum ratios in future - with the explicit aim of pulling up wages at the bottom and squeezing the pay gap.

Sunday 15 January 2017

Public supports tough line on exec pay shocker

As I blogged previously, the commentariat was united last week in its certainty that Jeremy Corbyn was talking rubbish when he proposed some pretty tough positions on executive pay.

Amazingly, it turns out the the public favours taking a very tough line on executive pay. 57% support  the idea that the Government should try and make companies adopt a 20:1 internal pay ratio, with 30% opposed.  This is a policy that has only just been floated, and which is associated with Jeremy Corbyn. As such, I'd say those numbers look pretty good.

Just to be clear here, the public seems to support a ratio that defines the max top to bottom pay range within companies, not just the disclosure of what the existing ratio is. Currently we don't even require the latter, although I'd say it's pretty likely to be mandated by government. The public already holds much more radical views than those that are only just being consulted on.

A max 20:1 ratio is much lower than most publicly-traded UK companies. If investors were in tune with public opinion they should not only seek disclosure of ratios, but vote against companies whose ratio is too high. So far, we have seen more investors move into pro-disclosure positions, but I haven't seen any say they will vote against those whose ratio is too great. But if they vote FOR the remuneration policies of companies with large ratios, they aren't representing the views of beneficiaries, right?

I don't think this is sustainable. Either investors, who only have power because the public appoint them to manage their savings, start taking a much tougher line, or policymakers need to start properly scoping out alternative methods. Personally, I have concluded that we have given shareholder oversight a good try, but it hasn't done anything like enough. But AGM season is ahead, so this is an opportunity to see if sentiment is changing.

To date, there hasn't been a single year n the UK when the number of pay defeats inflicted by investors has hit double figures. So let's see if a real change can be brought about this year - let's aim for defeats in double figures in the FTSE350. That means at least 10 defeats which would be unprecedented but only equates to about 3% of the total, so >95% would still get majority support from investors. This is setting the bar very low, but let's test for a pulse before we finally declare the patient dead.  

Tuesday 10 January 2017

Capping executive pay

It's fair to say that today has not been an unblemished success for Labour. Nonetheless, despite everything, there is something encouraging in what Corbyn has been saying about executive pay.

First off, let's tune out the noise. Much of the politico commentariat was united today in guffawing at how obviously dumb and wrong-headed Corbyn was to float such a stupid idea as a maximum wage. A number of these people were also commenting sagely yesterday about the wisdom in Dominic Cummings' take on dynamics of the Brexit vote victory. Interestingly, Cummings identifies the financial crisis, and the damage it did to the standing of the corporate elite, as one of the three tailwinds that helped the Out vote, and explicitly highlights unjustified executive pay. But I guess that was yesterday.

The last couple of years has taught me that most political commentators know feck all, and it's too difficult to identify who might actually be on the money, so it's largely worth ignoring them. That they are united in derision about a sledgehammer policy on top pay merely demonstrates what a closed circle - an echo chamber if you like - political commentary is. I think they are again massively out of touch on this, but hey ho.

Second, let's remember some recent figures. In 2013 in Switzerland a referendum proposal to impose a mandatory maximum pay ratio of 12 to 1 was defeated, basically 2:1. But a third of people backed it. In Switzerland, the bankers' bolt hole. A poll from Sept 2015 enthusiastically tweeted by one of the Guido Fawkes today crew showed a slim majority opposed (44% opposed, 39% in favour) to a maximum £1m a year wage. So a slim majority for the status quo over a very radical change in direction, before anyone has even started trying to campaign - sound familiar? And a CLASS poll in Oct 2014 found a 2:1 majority in favour of a maximum pay ratio of 65:1. I don't look at that set of figures and conclude that this is an unwinnable fight, and I do proper pessimism.

Thirdly, it's a trivial point, but the "mad idea" outer boundary has now moved. Putting workers on rem comms, for example, now appears a bit more reasonable. Disclosure of pay ratios, rather than enforcement of them, seems a bit... well... weedy now, doesn't it? I mean even the Tories support that now.

Fourthly, linked to this, chucking out a mad/extreme idea like this, does force people to react and poses the question - "well, what would you do then?" I saw quite a few people asking on Twitter today - what about actors? what about footballers? Well, yeah, what about them? I don't think most people would give a toss if the highly paid in others sectors got hit too. I wouldn't. And to be honest I can't get enough of Right-wing policy wonks publicly arguing that there isn't really a problem with executive pay and that it's outrageous in principle to try to limit pay at the top.

All that said, I don't think that a maximum wage is the right way to go, though I think it might be more popular than sensible people think. (Also, maybe it's better for mad ideas to be floated by shadow ministers rather than the leader). Maybe something like a maximum internal pay ratio might be a more sensible but still radical proposal, as it would pull up those at the bottom rather than just whack those at the top, and so would likely be more popular. But as I've said before, I'm a bit lost as to where  executive pay policy goes next - I'm just pretty sure it won't be more of the same.

As exhibit A here's what Corbyn actually floated as ideas on top pay in in his speech:

… We could allow consumers to judge for themselves, with a government-backed kitemark for those companies that have agreed pay ratios between the pay of the highest and lowest earners with a recognised trade union.
… We could ask for executive pay to be signed off by remuneration committees on which workers have a majority.
… We could ensure higher earners pay their fair share by introducing a higher rate of income tax on the highest 5 percent or 1 percent of incomes.
… We could offer lower rates of corporation tax for companies that don’t pay anyone more than a certain multiple of the pay of the lowest earner.
I don't see anything about greater performance linkage, more corporate disclosure or beefing up shareholder powers. Perhaps this is just Labour going nuts, as many commentators would have us believe. But personally I think in the coming years we're going to see more ideas on this sort of territory. The old regime is rotten, and the punters know it.

Wednesday 4 January 2017

ASOS exec pay in the spotlight

I blogged last month about the ASOS AGM results, which still puzzle me a little, but the big takeaway was a significant shareholder vote against the company's remuneration report.

Well, today we can see there are good reasons for shareholders and other stakeholders to take a look at how ASOS pays its executives. The GMB has crunched the numbers (see below) and established that when you look at chief exec Nick Beighton's total package his rewards are a feline-girth-increasing £1,000 an hour. That means he's getting 137 times more than ASOS warehouse workers, and got paid what they will get in the whole of 2017 by... err... Tuesday.

We've seen more interest/noise from investors about the scale, rather than just structure, of executive pay recently. Here's a great example of a company that is lavishly rewarding its execs whilst failing to address concerns of its workforce. There are a few asset managers with large positions in ASOS that could make a difference here - how about a New Years resolution to help fat cats lose some weight?


Union reveal it would take staff in Barnsley distribution centre 214 years to earn Nick Beighton’s 12 month pay packet

ASOS Chief Executive Nick Beighton will earn the yearly salary of his distribution centre staff in just the first two working days of 2017.
January 4 has been dubbed Fat Cat Day by the High Pay Centre as it is the day the average yearly pay of UK workers has already been outstripped by the average chief executive’s earnings for that year. [1] 
But the fast fashion boss will beat even that milestone – taking home his warehouse workers’ annual £14,000 salary by around 11am on his second working day of the year.
Nick Beighton makes almost £3million a year, once his bonus, pension and gigantic share award are included. [2]
This works out as staggering earnings of £1,022 an hour [3] – more than 137 TIMES the £7.45 [4] earned by staff in the Grimethorpe warehouse, near Barnsley.
Investigations into the Grimethorpe site, which is at the heart of the ASOS’ fast fashion empire, highlight excessive surveillance of workers, extensive security checks each day (including to and from the toilet) and the use of ‘flex contracts’ that leave staff unsure how many hours they will work each week. [5]
According to reports, up to 50 per cent of the workers are employed by Transline – the same employment agency used by Sports Direct.
Neil Derrick, GMB Regional Secretary, said:
“There is nothing intrinsically wrong with chief executives earning a good salary commensurate with their high level of responsibility and skills."
“However when your lowest paid workers are treated poorly it smacks of unfairness and double standards.
“Through his incentive scheme, Nick Beighton can more than treble his salary by meeting various targets his board set for him.
“This is on top of his 104% salary bonus.
“Meanwhile workers in Barnsley are given targets so draconian they are making themselves physically and mentally ill trying to meet them – with absolutely no prospect of a bonus whatsoever. 
“With Nick Beighton paying himself so handsomely it’s no wonder growing numbers of shareholders revolted against his recent pay package.[6]
“Denying workers a union voice and the chance to better their own conditions is outrageous and unethical.”
The High Pay Centre publically criticised the long term incentive scheme many chief executives – including Nick Beighton - receive. [7]
Stefan Stern, Director of the High Pay Centre, said:
"So-called 'long term incentive plans' are not long term, and provide perverse incentives.
“The High Pay Centre has long argued that they should be abolished - they are a flawed mechanism. “
Linking the largest element of executive pay to very simple performance measures, which do not accurately reflect the complex role of leading a large company, is clearly a mistake. 
“By all means reward people for good performance, but do it in a way that is fair and can be enjoyed by all employees.
"Mega rewards just for the top are clearly divisive, unfair, and bad for business."


Contact: GMB Press Office on 07958 156846 or at press.office@gmb.org.uk

[2] Nick Beighton was awarded 36,194 shares in their financial year up to Aug 31 2016 [see page 54 of annual report] as part of performance related Long Term Incentive Plan. The ASOS sell price as of 20/12/2016 is 4,821p. £48.21 x 36,194 = £1,737,312 This is in addition to earnings including pay, pension and bonus and benefits of £1,199,520 [see page 53 of annual report] His total earnings package for the year is £2,944,432.
[3] Assuming Nick Beighton works 12 hours a day, five days a week, with four weeks unpaid holiday 12 hour days x 5 day weeks = 60 hours 48 weeks x 60 hours = 2,880 hours per year £2,944,432/2,880 = £1,022 per hour 
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