Cameron the Thief

Philip Bowyer  18 May 2010 10:59:19

He Stole our Slogan

The new UK Prime Minister David Cameron has stolen our  20 to 1.  This weekend  in his first television interview since becoming Prime Minister he announced a cap on senior civil servants pay .  A commission will be set up which will limit the pay for heads of state bodies to no more than 20 times that of the staff on the lowest salaries.  We should have patented it.

Its good populist stuff to bash the civil servants. And adding new twist Cameron said  that this might mean cutting the chiefs salaries to 20 times the lowest pay or it could mean increasing the lowest paid.

That we will believe when we see it  but lets take him at his word and demand a pay hike for the lowest paid in all state bodies.

But its the little things that hurt more. In his interview on the BBC  Sunday morning he is quoted as saying: that the Labour government had taken decisions that 'no rational government would have done--giving something like 75% of senior civil servants bonuses after everything that has happened in the current year.'...'Its a crazy thing to do.''

It would seem worth point out that ' everything that happened in the current year''  looks like an attempt to blame civil servants for the economic mess. But the financial crisis that gripped the world was not caused by civil servants.  It was caused by bankers( aided and abetted by politicians) who decided to throw all caution and good banking practises to the wind in a mad scramble for greater and greater profits and greedier and greedier personal rewards.
 
Perhaps the posh premier has been calling the bankers even crazier than the civil servants he seems to despise but it has not been picked up much in the press or media.   We still get the sob story that we need to pay these captains of industry and finance unimaginable sums because that is the only way to attract talent.  Presumably if that is the only way to attract talent the government policy of squeezing public service salaries is designed  to get rid of the talent in the service.

The Labour Government was often and correctly attacked for indulging in the politics of spin, of the politics of images without substance.  But that is precisely what Mr. Cameron is now doing.  The words are delivered in all seriousness.  The civil servant becomes the object of public wrath.

But when you look at the facts what does this policy mean.  The Telegraph quotes a source from the PMs office saying this policy is an 'emblem' of the new coalition.  In other words image politics.

 Mark Sewotka , General Secretary of the civil service trade union CPS said :
 ' If this represents a Damascene conversion by the Tories to the cause of low and unfair pay then it will be very welcome .  If not , it will be an opportunity missed and will have minimal impact.
Of course no one should earn more than 20 times the lowest paid in an organisation--but on a salary of £13,000 ( the salary of many PCS members) that would still give ( the chief) £260,000 a  year and there are only a handful of very senior civil servants earning that kind of money.  Just looking at those senior salaries will not give you any answers about what a life is like for people on poverty pay.'

And if these salaries are crazy then what would Cameron call Barclays Bank proposal in May to double the total pay of its non-Executive Directors?.  That meant that a Director who works a maximum of 33 days a year....that's right 33 days..not a full year......gets £222,000 or the same as Cameron thinks is crazy for a civil servant.  The average bonus paid to a Director General in the Civil Service last year was £12,700.

And of course it does nothing real to reduce government spending in the way Cameron professes to be doing.    Cutting the bonuses of top civil servants might save the government an estimated £15million.  That compares to a government deficit of £167 billion.

So let the PM get serious:

Hike up the lower paid in the civil service and in the  private sector;
Tackle the bonus scandal in the private sector particularly the banks
Set in place a real 20 to 1 policy that will reign in the greedy bastards in the banks and private sector  not just the civil servants.

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Bankers still seem to be doing OK...for themselves

Philip Bowyer  1 April 2010 14:59:08

BANKERS ARE DOING IT FOR THEMSELVES

In case you missed some of the latest news about Bank CEO's remuneration here are just a few of hte juicier items from recent weeks in the UK.

HSBC

When is a pay increase a moving allowance?

There has been a lot of noise recently about proposals to increase the basic pay of HSBC CEO Michael Geoghenan's basic salary.  Investors, shareholders, politicians and journalsits all stepped into the fray when at the end of February it was learned that the company was seeking to increase his salary by about one third.  In defence of hte proposal the company had said that the HSBC CEO was not even amongst the top ten paid bosses from the FTSE 100 and ranked only fourth out of the CEOs in UK's biggest banks.  And of course there was hte old bogey of international competition and how salaries have to be enough to prevent losing such talent to overseas banks.

It might have rought tears to the eyes until in the small print at the bottom of the page you read that Mr. Geoghenan's basic salary is only £1.1 million.  Obviously he needed a 33% increase in basic pay.  Who can exist on that kind of pitance these days.?  Apparently he can.  He gets an annual bonus equivalent to about 4 times his annual salary.  Following the fuss about pay last year he voluntarily gave up his bonus.  He gave it to Charity.  Nice one.

And perhpas he did not really give up the salary increase.

As part of a company restructuring he moved to Hong Kong in February.  As reward for the hardship and inconvenience  he has been paid $300,000 , almost the same amount as the foregone salary increase.  That is $300,000 over and above housing and other allowances paid to him when moving.

Somebody has said that seems a bit generous especially as in Hong Kong except for housing it  is cheaper to live than in UK and has lower taxes.

SANTANDER

An OAP has to work for 1,131 years to get the same pension as the CEO.

The old age pension for a single person in the UK is approx £85 per week.  Santander CEO, Alfredo Saenz, 68 , will be entitled to a pension of  £5 million per year.  This is the equivalent to one year of his salary plus one third of his annual bonus.  Or put another way 1,131 times the normal state pension in the UK.

In the UK Santander includes the former building societies: Abbey, Alliance and Leicester and Bradford and Bingley.

Santander UK Chief Executive was paid about £3.5 million in 2009.

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Wall Street Journal survey reveals highest-paid CEOs in the US

Rachel Cohen  1 April 2010 14:18:41

A Wall Street Journal survey shows pay for US CEOs fell in 2009-- but don't get too worried: it was by less than 1 percent and top dogs like Occidental Petroleum's Ray Irani still made more in one year (over 52 million US dollars) that most workers will make in a lifetime.

An accompanying article in the Journal  shows that while some CEO's did cut back on bonuses in 2009, as many US workers lost their jobs or saw their pay cut, their salary and bonuses should rebound in 2010.

Well that's a relief.

For many US workers, the picture is not so rosy. The US Commerce Department recently released a report showing personal income from wages, dividends, rent, retirement plans and government benefits fell 1.7 percent in 2009, unadjusted for inflation.

While they may see a rebound in their own pay in 2010, it is very unlikely they will reap the rich rewards of corporate management.

US workers have seen their real income fall further and further behind top executive pay over the past three decades, the AFL-CIO says on its Executive PayWatch website. When you take into account the attacks on unions and the decrease in union membership that has taken place in the last 30 years in the US, it's hard to ignore the connection.



Let's hope that 2010 will be a good year for workers, including the passage of the US Employee Free Choice Act, legislation that would help level the playing field for workers by cutting out some of the intimidation and punitive action taken by employers when they find out their workers are trying to unionise.

The Wall Street Journal Survey of CEO Compensation

Occidental Chief Tops Pay List

Employee Free Choice Act

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The Big Question...Should there be a MAXIMUM Wage

Philip Bowyer  1 April 2010 14:07:09

10 to 1 :  SHOULD THERE BE A MAXIMUM WAGE'

The Big Question is a Sunday morning UK television programme.  A few weeks ago with the studio audience the debate was on the question ' Should there be a Maximum Wage.'
By way of introduction the host pointed out that anyone on the minimum wage in the UK would have to work for 332  years to receive the equivalent of the annual salary of the CEO of BP.

Then Les Bayliss of UNI's affiliate UNITE , with 130,000 members in the finance industry set out a demand that no CEO should receive a salary of more than 10 times the minimum wage in any company.  He said it was time to start the debate.  For years in UK there had been a debate about introducing a minimum wage.  There were dire warnings from industrialists and politicians that it would ruin competitiveness and be the end of the British economy.  No doubt there would be similar wailing and gnashing of teeth about introducing a maximum wage.  But in the end a minimum wage had been introduced by the Labour Government and a decade later almost everyone acknowledges it has been a success.

It was interesting to see the audience reaction to the 10 to ONE   proposal.

AGAINST A MAXIMUM :

There was a young entrepreneur, a university lecturer and an activist theologian.  The arguments were predictable.

 A maximum remuneration would : stifle ambition, squeeze out entrepreneurship, harm the economy and lead to loss of jobs.  And on the moral side it was asserted that while minimums protected people, maximums were designed to punish people and were the first step on the road to dictatorship.

Some of the softer sentiments of those against a cap were that the financial crisis was not caused by people earning high salaries.  As an aside I could not help thinking that it must have been all the poor bankers who caused the financial melt- down not the rich ones.  I am still looking for the poor ones.

Or just as sentimental that wealthy people like Bill Gates spread their fortunes around doing good and creating jobs.  That's jobs as in work not as in Steve.

IN FAVOUR of a MAXIMUM were UNITE, some NGOs and a university prof.  The arguments were that :

The financial meltdown was partially caused by the unlimited remuneration culture; poverty and division in society is caused by allowing the rich to become filthy rich.
 
Greater equality leads to greater initiative and innovation.  This argument is apparently expanded in a book by the prof present.  'The Spirit Level' by Prof K. Picket might be worth looking up.

But probably the  best argument against those who say a maximum would stifle ambition and innovation was that it would do nothing of the sort.  The idea is not to fix a rigid maximum but a relative  maximum.   The CEO's pay can increase as high as anyone likes as long as the minimum pay increases at the same rate..

Therefore it was argued that a maximum of 10 to one would not stop CEOs and entrepreneurs earning vast amounts as long as they take everyone in the company along with them.  It would be good for everyone: at the top in the middle or at the bottom.  A great incentive for everyone in fact.

I like that argument.  What about you?

MYTHS IN PUBLIC DEBATES

Its funny that in public or televised debates like this things are said which are clearly really believed by the person saying them. But do they really make sense or hold up in the cool light of day.  Some of the comments in this programme included:

1. ' Sweden capped salaries in the fifties and sixties and it did not work.?'   TRUE or FALSE ?

2. ' Everybody working for Bill Gates from the cleaner to the inventor of the software for the latest games feels valued by the company.?'  TRUE or FALSE?

3. ' Women in the USA are four times more likely to die in childbirth than women in Greece.?'  TRUE or FALSE?

4.  ' Only 0.6% of people in the UK earn over $150,000.'  TRUE or FALSE ? ( lots are paid over £150,000 but how many earn it )

5.  ' Equality makes people Healthier.'  TRUE or FALSE?

Anyone know the answers.

.  

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Vote on our Blog Logo

Rachel Cohen  12 March 2010 15:42:50

Which of these images best represents the blog's message?

Tell us in the comments which of these is your favorite. Or send us your own logo idea.

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Gazumped by the Greens

Philip Bowyer  10 March 2010 11:40:37

They want 10 to 1

The UK Green Party is undercutting our campaign to cap the greedy b's  pay at 20 times the lowest salary in any company.

At its recent weekend spring conference the party adopted  a resolution:

'Recognising  that income inequality underlies and fuels most of the social problems confronting us in Britain today we propose that in all undertakings the maximum wage paid to any member of staff should not exceed ten times that paid (pro rata) to the lowest paid worker. In addition no member of staff in an organisation should receive an annual bonus exceeding the annual wage of the lowest paid worker in the organisation. '

Interesting: the greens link the CEO pay issue to the major social problems. They do not link it to the current economic crisis.

Interesting: 10 times the lowest wage would fix differentials at an historic low. Even allowing a bonus equal to the annual pay of the lowest paid worker would leave it at just 11 to one. It makes our demand for a total package limit of 20 to 1 look positively generous.

Interesting: with an election only weeks away in UK what are the other parties saying?

Some suggestions.

Conservatives: pay whatever they like so long as they donate to the party and pay tax in the Turks and Caicos Islands

Labour: it looks a tad greedy and immoral but lets not rock the boat it might frighten the bankers from London

Scotish Nats, SNP: pay what they like but bonuses must be in scotch whisky

Welsh Nats, Plaid Cymru: pay what they like but the bonuses must be paid in sheep

Lib Dems: pay what they like as long  as it is in Euros

UKIP: pay what they like but only in unconvertable guineas.

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Uncertainty = Stress = Riches

Philip Bowyer  25 February 2010 10:48:22

In my search to find the real justification for over the top salaries for CEOs a new one occurred to me one morning this week as I read the newspapers: uncertainty.  

Uncertainty has always been a major problem for millions of workers: dock workers, agricultural workers, building workers and others for centuries. In many countries even today workers have to line up each day to see if they could pick up a job.  

One day or one week there was enough to pay the rent, feed the family and even a whisky on Sunday; the next week there was nothing.

In the summer you could make a mint and in the winter you got by.

It carried on into piece rates in factories.  Good weeks followed by bad.  A week with bags of overtime and the next week none.

And of course it is easy to understand the stress that can cause for the worker concerned and their families.

So reading the paper I poured over the earnings for the last few years of Adam Crozier, the executive who saved the Royal Mail in the UK and is now moving on to save the Independent Television Corporation, ITV.  

Adam Crozier, as we saw in an earlier story got the ITV job on the recommendation of his old footballing friends.   And he seemed to have got the Post Office job the same way back in 2002.

I always understood it was a well paid job and of course came with a pension fund based on final salary.  That really was a bit of luck because most employers in the UK have been rapidly closing down pensions based on final salary but he sneaked in before the post office closed it down for staff members.  Lucky, no?

Anyway forgive my digressions again.  What did he earn at the Post Office?  It looks like this in UK Pounds:


2002/3        £114,150,
2003/4        £664,220,
2004/5        £704,000
2005/6      £2,635,00
2006/7         £ 999,00
2007/8     £3,044,000
2008/9        £995,000

Then I remembered from earlier stories we have written, he stands to get a few million in bonuses in 2010,   before he leaves to go to ITV. And of course there is the cost of those pension contributions.  So on a conservative estimate it looks like Mr. Crozier earned (sorry, that should be “was paid”) probably something in excess of £12 million in 7 years at the Post Office.

So it looks good.  But think of the worry as his pay packet yo-yoed up and down between £114,000 and £3 million.  He could never have known from one minute to the next whether to buy a new house or a new yacht or a new football club or to wait a few weeks to see if things might get better.

He might have been better off working on piece rates.

 During his stay at Royal Mail as part of the recovery plan the workforce was reduced by 36,000 jobs.  On piece rates Mr. Crozier was getting paid around £333 for getting rid of each postal workers job.  Perhaps if he had known that at the beginning he could have earned a lot more and it might even have been a bit more predictable.  It would not have depended on phony performance figures but easily understood: one job = £333

Or might he have demanded a very predictable 20 times the average salary in the company.

That too would have let him off the stress…

Meanwhile a mail carrier for the Royal Mail was always filled with the certainty that he would be earning between £14,000 and £18,000 per year.  The postal worker never had the worry of not knowing how much would be earned next month.

She knew she would have to work for 106 years to get the equivalent of her boss’s annual pay.  

It was predictable bliss.  No?

OK back to the drawing board.  Stress and predictability does not seem to work too well as a justification.  Let's keep trying.  We will understand eventually, I am sure of it.

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Taking the RISK out of RISK and the TALENT out of TALENT

Philip Bowyer  18 February 2010 15:02:19

Help Me Understand CEO Pay ....PLEASE

I have a confession.  It is many years since I studied economics.

I know that some of the things I learned are now completely out of date.  Perhaps that should read  'many ' or 'most' not just 'some.'  One of the things I learned was that  people could and indeed should get well rewarded for taking 'risks.'  I understood that to mean that a person might invest a lot of their own money in a project or company.  If the company or project succeeds that person can make huge gains.  And the risk was that if it failed then the person could make huge losses.

Fair enough you might think. As a theory or justification for people making lots of money it seemed to have a certain 'law of the jungle fairness' about it, even to me.  And I also had the impression it was not one of these theories that I learned which had been totally abandoned since I abandoned studies.

Risk Theory Lives On
Last year or perhaps the year before, I took part in a debate at  the University of Warwick about the activities of Private Equity companies.  There were different kinds of people in the debate: an academic, a boss of one of the PE companies, a politician and me .  Perhaps because of the  disparaging way I spoke of the huge sums earned by PE people the student audience accused me of several things.

The first accusation was simply that I was jealous of people earning a lot of money.  There might be a certain truth in that,  although I have to say, it never really occurred to me.  I have always been quite happy with the way I have been rewarded for my work.  I think I have been pretty lucky compared to most people in the world.

The second accusation was that these people earning huge sums were wealth creators and this benefits all of society including the poor folks at the bottom of the heap.  That sounded not too bad except that I had just read somewhere about how  national wealth in OECD countries had been showing that wages were making up a smaller and smaller part of overall wealth over the last 20 years or so.  

I think people used to refer to this theory as trickle down.    But unlike a theory based on the behaviour of water it seems that money trickles up , not down.

The third accusation, which gets to the point of this article,  after my usual digressions, was that I did not understand that people who take risks deserve to get big rewards.  This impressed me.   Warwick University has a good reputation as a business university.  So if students at such a good university were still being taught that 'risk' was the justification for high earnings, it meant my economics might not be as out of date as I thought.

So if the theory was not out of date it must be reality that was out of sync.

These were the days of the take over of Manchester United, the greatest football team in the world, by an American family.  They borrowed millions of pounds from banks to buy the club.  Then put all the debt which they had incurred with the loans into the debt of the club.  And with one flick of a magic wand they were free of all risk to themselves.  They could then begin to take out of the club millions in management fees and loans to family members.  Of course the club has a bit of a problem shouldering all the risk but that is not the family's problem.

Can Your Job be at Risk ?

So risk theory does not apply to a lot of investors.  What about the CEOs and the other captains of he economy who might not invest their own money but have to invest their talent and reputations in the businesses.  

They seem to have developed the no risk strategy to a fine art.  Forget for a moment the high salaries I keep moaning about elsewhere.  Something else keeps coming up these days.
Its the signing on fee.  It reminds one of footballers of course.  They get big signing on fees and big salaries but they have the justification of having short careers.  That does not seem the case with CEOs.

Some of the spectacular signing on fees in recent times include: Marc Bolland picking up some £7.5 million for signing with Marks and Spencers;  Adam Crozier signing on for Independent Television for an as yet unknown sum but rumoured to be in millions ;  Mike Smith who reportedly got $5.1 million for signing for ANZ bank;  Gail  Kelly CEO of Westpac recently got a package of some $10.6 million making her the highest paid woman CEO in Australia and in that package it seems that there were at least a few million as a signing on payment..  And there are lots of other examples.

Sign On Sign Off...Its all the same to me

So the rule is that if as a CEO you change your job you negotiate a big payment to compensate for anything you might have lost if you had stayed in your previous job.  The exception seems to be Adam Crozier who a apparently wont be joining ITV until April.  He must stay that long with the Post Office to make sure he gets the £2 million he has been promised.  With that in his pocket he will be ready to take the ITV starting fee.

But you must also remember to negotiate the signing off fee or golden parachute as it used to be known in my day.  And we have seen some spectacular leaving presents £3.5 million for Francois Barrault leaving British Telecom; John Stewart  added a little $2.7 million to help eke out his pension when he left NAB, Australia and so on.

For CEOs it's Talent that Counts not Risk

So lets forget the risk factor for CEOs. Like for many investors reality has just got a bit out of step with the theory.  But it is a great theory of course.

It is difficult to judge how people judge talent.  So a  little case study provides valuable insight.  Let's take the case of Crozier's appointment at ITV.

Archie Norman was charged with finding the company a new CEO.  It seems that the names of various candidates were bandied about but came to nothing.  So naturally at such moments in search of the greatest talent,  friends become friends.  Mr. Norman was formerly employed by the  UK retailer ASDA or for readers not familiar with UK that is the name for Walmart in the UK.  Allan Leighton before he became the boss of the UK Post Office coincidentally had also worked for ASDA or Walmart if you prefer.

And Mr. Leighton was a by coincidence also on the board of an ailing football club called Leeds United.

And Mr Crozier just happened to be head of the Football Association at the time.  So when Mr. Leighton went from the supermarket to the Post Office who better to take with him than the Head of the Football Association.   After some years with the Post Office and some very nice large bonuses later Mr. Crozier is moving on.

And the ex ASDA man at ITV needs to get insight into the candidate's talent before the appointment is made.  So to whom can he turn to give an unbiased evaluation of Croziers talent.?
According to the UK newspaper , the Sunday Times, Norman got his men to turn to Sven-Goran Erikson, a football manager (who has not been blessed with much success recently) who in the good old days had been appointed as the manager of the England national team  when Crozier was head of the Football Association,

The Lessons


1.  Risk theory is good but unfortunately does not apply to most investors or any CEO.
2. The talent theory explains well the need to pay huge amounts to CEOs
3.  If you need a New CEO for Independent Television as an unsuccessful football manager to assess his talent.
4.  Whatever the theory the CEO always gets a fat salary.

I am back to the beginning.  I must be too old to understand modern economics.  Can someone help me understand?

• Comments [1]

CEO Pay, New Zealand Telecom

Philip Bowyer  11 February 2010 10:21:24

N Z Telecom...

Work 84 years to get the CEO's Pay

The CEO of NZ Telecom , Paul Reynolds, has been paid more than $5 million despite a 43% decline in the profits of the company.  See the link below.  

A techie working for the company might get around $60,000 per year.   I am told that is considered to be  not a bad wage in New Zealand.  But still  even with what looks like a good pay packet the techie,( probably a UNI affiliate's member)  would have to work some 84 years to get the same pay as the CEO gets in a year.

If we had the 20 to 1 rule working and poor Paul had his salary capped, he could still get $1.2 million a year.  I guess a lot of people in New Zealand would think they could live a fairly comfortable life on that amount.

No?
Top News article

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Live for 1200 years to get a CEO’s pay

Philip Bowyer  11 February 2010 09:47:51

A worker on the average salary paid in the giant UK retailer Marks and Spencer would need to work for 1200 years to earn the same as what Marc Bolland, the new boss of the company, will be paid this year, said UNI Deputy General Secretary Philip Bowyer    .
"Of course it is an exceptional year for Mr Bolland," Bowyer said.

Included in his 15 million pounds package this year is a special payment of 7.5 million pounds compensation for leaving his former job. That's a kind of one-off transfer fee which will not be repeated. In a real bare-bones rock-bottom year for Mr Bolland his annual salary might be reduced to 979,000 pounds plus a small bonus of 2.5 million pounds.

So in the worst of years, the average employee would only have to work for 278 years to get the same as the boss would be paid a year.

According to the British newspaper the Guardian,Bolland will more than double his current remuneration. He was employed by Morrisons, another UK retailer much bigger than Marks and Spencer. Doubling the salary for half the work can't be a bad deal. Nobody knows what Marks and Spencer think about it. But then nobody has asked them.

"UNI believes that CEO pay should be kept at 20 times the average salary in the company," Bowyer said. "At that level Mr Bolland could still live comfortably."

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