Great articles to invest some of your time in.
You can’t keep up with the soaring pay of Britain’s fat cats. By 3am Friday I had only half-finished an article on income inequality, so I posted my photos of the St Paul’s protests and parked my chin-stroking for next week.
But a week is a long time in executive pay bloat.
Later that very day, a new report thudded into our consciousness, weighed down by all the ink needed to print all the zeroes at the end of a FTSE 100 directors’ paycheck.
According to Income Data Services’ latest report – a steal for fat cats at £460 a pop but summarised by the BBC for the rest of us – the pay of directors of FTSE 100 businesses rose 50% over the past year.
This means earnings of almost £2.7 million for the average director of a FTSE 100 company! And these aren’t even the bosses we’re talking about here, just any old director. (Chief execs had to make do with a paltry 43% rise in a year).
As a result of the IDS report, the subject has had another thorough airing, and my little contribution is going to look as significant as the annual salary of a secretary that’s accidentally paid into the bank account of her blue chip boss – i.e. pretty much a rounding error.
So I won’t spoil my damp squib thunder by venting any more outrage now.
Instead, for more insight try Investors Chronicle economics editor Chris Dillow’s blog, where he points out that all the usual reasons for sky-high executive pay don’t cut it, and concludes:
Given all this, you might wonder what the real reason is for bosses’ high pay. Simple. Power. Bosses, generally, might not have the power to create super-efficient high-performing firms, but they do have the power to extract rents from shareholders and workers
Like some City traders, they must, in effect, be bribed not to plunder the firm’s assets.
From the point of view of shareholders, the small theft that is a multi-million pay-packet is better than the large theft of wilful mismanagement.
The lunatics
From the money blogs
- It’s all about margin of safety – Mr Money Moustache
- Terry Smith: The Big Bang remembered – Straight Talking
- Investing based on PE10 market valuation – Oblivious Investor
- A big list of behavioural biases – The Psy-Fi blog
- Earnings versus net wealth – DIY Income Investor
- Bernstein: European stocks look cheap [Video] – Morningstar
- Ferri: Buy, hold and rebalance works [Video] – Morningstar
- Momentum loses its momentum – Swedroe/MoneyWatch
- Seven inspiring business women – The Digerati Life
- Downsizing is the new equity release – The Finance Blog
Buy of the week: I shot Friday’s St Paul’s protest photos using a Panasonic TZ10. It’s the first compact camera I’ve ever used that gives SLR-like results (though it’s not as flexible).
Mainstream media money
- Scotland’s first goldmine to open in 2013 – Business Week
- Currency Wars – The Economist
- Annuities vs. Dividends [A good comment thread] – Motley Fool
- How to sack slackers and boost employment – FT
- Consider some ‘unloved’ investments – FT
- Not all inflation-proofing products are equal – FT
- All hail the new Nifty Fifty – FT
- Deadline looms for solar investors – FT
- FTSE 100 set for best month since 1990 – Telegraph
- Property demand reaches four-year high- Telegraph
- Geoffrey Boycott’s home ownership dispute – Telegraph
- Junior ISAs launch next week – The Guardian
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This story is a red herring as the no. of directors across the FTSE100 is so small, it doesn’t really have anything to do with pay inequality – to talk about that you would be better off looking at the top 10% of earners vs the bottom 10% or some similar statistic.
What directors get paid is really a matter for the shareholders to decide. If they think the pay packets are good for business then so be it. I would imagine a fair no. of the people that the article relates to have been hired of the back of firing their predecessor (for poor performance in the down-turn) so its not really a pay increase at all, just the increased cost of hiring someone perceived to be ‘better’. Its certainly not something that should be regulated from government, as the protestors seem to want. If the shareholders do a bad job then they have themselves to blame.
Salaries like this do serve to keep the lower orders toiling – why else would a twenty year old work an 80 hour week? Its because he wants that multi-million £ paycheque years down the line, even though the nature of a bsuiness hierarchy makes it unlikely he will ever get it, it is still a powerful incentive. Quite possibly a few million very efficiently spent if viewed from that perspective…
So to sum up – I don’t buy this media story at all, its an irrelevance in the grand scheme, typed up purely to stir unrest and make people feel even angrier about their lot – which, as we all now, is the primary role of the media.
Hi Ben, I don’t really agree with you and am going to come back to this point later in the week.
Where I do agree though is that the carrot of a super-pay-off can keep the lower orders — at least the lower management orders — toiling for their chance at the top job. In fact, after giving the matter some thought a few years ago, I decided that was pretty much the only rational explanation for super-salaries, besides their being an anomaly. (Certainly the research suggests they in no way impact performance, as detailed again in the Chris Dillow blog I link to above).
Thanks for your excellently-argued thoughts!
I would add that I definitely don’t agree with these kind of pay rises, I just think they need to be managed ‘within’ the individual companies by the relationship between the board of directors and the shareholders.
Maybe shareholders aren’t up to it right now, in which case the world needs to develop more powerful and savvy shareholders to provide the proper ‘checks and balances’…
An article, perhaps, on becoming a ‘super shareholder’ Mr. Monevator?
Everything is fatter in the land of the free… such as pay… just from todays news…
“For most of us, taking on a job with less responsibilities might mean a pay cut. For Eugene Isenberg, the outgoing CEO of Nabors Industries, it means a bonus. A really big bonus.
Isenberg will be given a $100 million cash payment as he drops the CEO title but remains chairman of the board.”
http://fuelfix.com/blog/2011/10/28/100-million-bonus-to-nabors-boss-for-stepping-aside/
Ben you may consider this business as usual but something is rotten in Denmark as I read things…
rotten indeed, but who is best placed and best incentivised to deal with it?
a minister?
a hippy in a tent?
or the shareholder who owns the company?
I’m not really trying to defend any of it – just suggesting who has the responsibility to fix it…
I still maintain that the rich/poor divide is a separate issue from discussion of what the 1e-11% of the population we are talking about here get by way of remuneration. More basic stuff like education and management of the welfare state is what drives these kind of issues…
Shouldn’t directors’ pay be a problem of the shareholders/investors? If they are OK with whatever pay directors are getting why is it anyone else’s business? I well and truly don’t get the outrage of the media.