Tuesday, 19 August 2014

A few bits and pieces on exec pay

1. The High Pay Centre has don't a great job crunching the data on employee vs executive pay and found that in the FTSE100 the now stands at 131:1. Of course there are some much bigger individual ratios. Martin Sorrell has earned 780 times the average WPP employee salary (which, by the way, is a very healthy £38K). Lord Woolfson earned 459 times the average Next employee.

2. There's a very interesting interview with the head of the IoD in the Guardian. They go mainly on the exec pay angle, but personally I think what he says about "stakeholders" is most interesting (and if you think about it, this doesn't sit well with his claim at the end that shareholder powers are the answer to the exec pay issues). Here's a snippet:

"We are trying to get back to the focus on governance, on running companies better and in the interests of stakeholders broadly, in the climate we are in today.
"Competition and the market have, in my view, brought greater benefits to humanity than any other movement ever and we need to remind people about that. But we also need to make sure that it is competitive and is run in the interests of all its participants. That is what governance is all about. It is about running a business properly and in accordance with its professed purpose for all its stakeholders."
There are also some digs in there about shareholder value.

3. I spotted an odd comment from BIS at the end of a story on the HPC analysis:

A spokesman for the Department for Business, Innovation and Skills said: "The government has introduced comprehensive reforms to give shareholders more powers in order to restore the link between top pay and performance, which in recent years has become excessive and increasingly disconnected.
"In October 2013 new laws reforming the governance of top pay came into force, boosting transparency by arming shareholders with more information and giving them the power to hold companies to account.
"Business secretary Vince Cable also wrote to all the members of the remuneration committees back in April urging restraint, and while we will need to wait until the end of the [annual meeting] season before we can reflect on the full impact of these actions, many firms have already seen top pay voted down."

Er... many firms?

As far as I know only one company - Kentz Corporation - has actually lost the (binding) vote on its rem policy that the government brought in. And I think there are only two rem report defeats so far this year - Kentz and Burberry.

We might think that the new exec pay regime has had an impact on many firms, perhaps by encouraging them to engage more with their shareholders and earlier (though exactly this claim was made for the advisory vote after it came into force in 2003!).

But it's plain wrong to say that "many firms have already seen top pay voted down." I think the running total this year is 2, and one of them was defeated using the existing advisory vote so it can't even be credited as a win for the new regime.

And in fact there is a much bigger point here. I reckon in the past decade less than 50 companies have lost a rem report/policy vote. Such defeats are rare. If (big if) this is a measure of the success of our governance system for exec pay then is it working?

Sunday, 17 August 2014

A bit more from Roy Hattersley on equity ownership

A few nuggets from Choose Freedom.

First a general bit on shareholdings:

The acquisition by working men and women of small shareholdings in unlikely to change the nature of society. Conservatives may call it people's capitalism. But most of the capitalist people will see their small portfolios as another form of saving which may give them a feeling of middle class prosperity which normally goes with a bank account but which does not emotionally commit them to support for the enterprise culture of stock exchange and commodity markets. For although the possession of a share certificate will provide a slice of theoretical power, the whole process of appearance or proxy (not to mention the likelihood of being swamped by institutional power) will diminish the feeling of real involvement. On the other hand, the possession of equity holdings which are organised to maximise the influence of employees within the company can induce a wholly different attitude, for the employee-shareholder is doubly involved with the company.

Attitudes of institutional investors (in the 1980s) to extended employee share ownership:

One of the principal barriers to the extension of real share ownership is the criterion laid down by the investment protection committees* of the big institutional investors - the insurance companies, the pension funds and the unit trusts. They fear that, notwithstanding the evidence of improved performance, worker share-ownership will dilute the value of traditional holdings as new shares are issued to employees. Therefore they stipulate that the the firms in which they invest should not allocate more than 5% of their pre-tax profits or 1% of their existing share issue to employee shareholders. That prejudice could be overcome by law, but even such a statute would have to be accompanied by the gradual education of slow learners. In the meantime, we need to establish trusts which can purchase existing shares on behalf of employees without diluting the value of the shares in general. Unless such new institutions are created, investment protection committees will inhibit the development of worker-shareholder schemes in a way which tax incentives do not have the power to overcome.

Employee ownership and power vs state ownership

Socialists who are serious about the extension and diffusion of power and ownership need to start thinking about how [widespread employee share ownership] can be achieved. Unity Trust Bank - the trades union bank - has begun the process. Extending it is a classic socialist cause. Ownership and wealth is being spread more evenly; the state is employed not to enhance its own power but to organise the distribution of power to the people - theoretical rights are changed into reality; the mechanisms of government, the tax system, the legislative process, are all being used to provide individuals with a greater influence over their daily lives. To fail to provide that process because of some half-digested notion about collective action, centralised planning or state ownership would be a denial both of the individual rights which ought to be at the heart of socialism and the long-held belief that the emancipation of the worker requires his relationship with his employer (and his relationship with the capital which provides his employer with power) to change...

[T]he more different schemes to extend worker control and influence proliferate - co-operatives, ESOPs, investment funds - the more the whole nature of society changed. That is surely a more noble objective than the transformation of a few private monopolies into state monopolies.

* these were the committees that dealt with 'ownership' issues and rights before corporate governance, stewardship etc (I think they were, basically, the NAPF Shareholder Affairs Committee and ABI Investment Committee, though they may have had different names at the time). The Institutional Shareholders Committee was originally an extension of the existing investor protection committees, so it's possible there is an ISC policy doc out there somewhere setting out the proposed limits on employee ownership and profit sharing. Personally I quite like the language of 'investor protection'.

Friday, 15 August 2014

Chevron latest: Barrow Island could be declared Port of Convenience

As some of you may be aware, Chevron is in a bit of a mess with its Gorgon LNG project off the North West coast of Australia. The project is late and over budget already. Local management have tried to blame employment law and organised labour for their own mismanagement - but this has been thoroughly debunked by a report on the project. The ITF recently wrote to the SEC to raise concerns about some of the disclosures Chevron has made about the project.

However, that doesn't look to be the end of it. At the ITF congress this week, Paddy Crumlin warned that Barrow Island could be declared a port of convenience.

From the MUA website:

Speaking from the ITF congress in Bulgaria today, International Transport Workers' Federation (ITF) president Paddy Crumlin said Australia’s Barrow Island could be declared a ‘port of convenience’ unless Chevron tempers its union-busting efforts in the offshore oil and gas sector.
Chevron’s Gorgon LNG project off Australia’s north-west coast has overrun from USD37 billion to USD54 billion due to the company’s ongoing mismanagement.

But rather than take responsibility for its poor performance, parts of the company insist unions were to blame, said Paddy Crumlin, who is also national secretary of the Maritime Union of Australia (MUA).

“If Chevron continues to seek to exclude my union from an Australian island which will export natural gas then it will have to be declared a port of convenience,” Crumlin told the 43rd ITF congress in Sofia, Bulgaria.

“They are suing the MUA for no more reason than workers on the job ensuring that occupational health and safety standards are met.

"We have made attempts to reach out to Chevron, we travelled to their shareholder meeting in Midland, Texas, earlier this year."

It was there the MUA received an assurance from Chevron chief executive John Watson that unions were not to blame for cost blowouts on the Gorgon project.

Watson said he had "no intention of blaming organised labour for cost overruns or delays at Gorgon."

"Employers need to clearly decide whether they want to work with unions – and we’ll be there – or against unions – and we’ll be there as well,” Crumlin said.

The 43rd ITF congress in Sofia brings together almost 2,000 participants from 379 unions in 116 countries.

Thursday, 14 August 2014

Sports Direct exec & employee pay

Just a quick reminder, here's the supporting principle of the UK Corporate Governance Code says about setting remuneration policy

[The remuneration committee] should also be sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases.

And here, for comparison, is what Sports Direct says about employee vs exec pay

The Company has a large number of employees with different responsibilities and differing levels of seniority. Reward policies for employees other than Executive Directors are determined by reference to grade, role, performance and other relevant factors. The Committee does not consult with the wider employee population about the remuneration policy for Directors. However, the Committee has reviewed the salaries, other remuneration and other employment conditions of senior and middle managers throughout the Group, and has taken them into account in considering Directors’ salaries and the creation of new incentive schemes in order to create a sense of common purpose and sharing of success. Indeed, in order to reflect the Company’s “One Team” ethos, the 2015 Bonus Share Scheme applies to both Executives and eligible employees who meet the qualifying conditions as determined and agreed by the Committee on the same basis (including the performance conditions).

According to press reports, Sports Direct has the large majority of its employees on zero hours contracts, which also require those employees to seek approval from managers if planning to work elsewhere (which obviously will discourage some from doing so). Those employees are also not eligible for the bonus scheme (which covers about 3,000 people, according to City AM). 

Yet the company's remuneration report makes clear that the remuneration committee does not consider employees' views, and only looks at a small subset of the workforce when reaching decisions. Not surprising, then, that they have an upstairs/downstairs approach.   

The UK CG Code has always been toothless on this point about employment conditions vs exec pay decision. Unfortunately there's no evidence so far that the FRC/FRRP are likely to take a different approach. Toughening up the corp gov regime on this point is something that Labour ought to be thinking about... 

Declining shareholder support for pay policy at National Express

Just a bit of fun. I noticed there has been a serious uptick in opposition to executive remuneration at National Express. This coincides with the company taking a very 'robust' line against efforts by employees to have union representation in its US schoolbus business. So while backing campaigning against their own drivers trying to organise for decent pay and conditions, the board has been letting exec pay become more generous.

Anyway, here is the trend in shareholder voting on the remuneration report in the last five years. Could be one to watch in 2015.

Monday, 11 August 2014

Walgreen abandons inversion plan

Interesting news in the past few days that Walgreen won't shift its base to Switzerland as part of its takeover of Alliance Boots. There was a backlash against the plan, known as tax inversion (also potentially part of the Pfizer Astra plan if it had gone ahead), with union shareholder activists directly involved.

As the WSJ put it:

The tactic involves using an acquisition to move corporate headquarters to a tax-friendly locale, such as the U.K., Ireland or Switzerland. Such a move could have cut Walgreen's total tax bill by a third—but also attracted attention from the U.S. government.

Notably CTW has also highlighted Walgreen's apparent violations of Regulation FD.

The takeover also returns Boots, now part of a larger group, to the public market, seven years after being taken private by KKR. Funnily enough this was one of the first things I blogged a lot about, as there was quite a bit of discussion about the commitment of the new owners to properly funding the Boots pension scheme (an issue raised by unions on this side of the Atlantic).

Sunday, 10 August 2014


"Cause and effect assumes history marches forward, but history is not an army. It is a crab scuttling sideways, a drip of soft water wearing away stone, an earthquake breaking centuries of tension. Sometimes one person inspires a movement, or her words do decades later; sometimes a few passionate people change the world; sometimes they start a mass movement and millions do; sometimes those millions are stirred by the same outrage or the same idea, and change comes upon us like a change of weather. All that these transformations have in common is that they begin in the imagination, in hope. To hope is to gamble. It's to bet on the future, on your desires, on the possibility that an open heart and uncertainty is better than gloom and safety. To hope is dangerous, and yet it is the opposite of fear, for to live is to risk.

"I say all this because hope is not like a lottery ticket you can sit on the sofa and clutch, feeling lucky. I say it because hope is an ax you break down doors with in an emergency; because hope should shove you out the door, because it will take everything you have to steer the future away from endless war, from the annihilation of the earth's treasures and the grinding down of the poor and marginal. Hope just means that another world might be possible, not promised, not guaranteed. Hope calls for action; action is impossible without hope...

"Anything could happen, and whether we act or not has everything to do with it..."

Rebecca Solnit, Hope In The Dark