THE chief executives of FTSE 100 companies have been raising two fingers to the world.
This is, as you probably know, the traditional City signal to indicate that double-digit pay increases are required forthwith if Britain is to prosper.
Not double figures for everyone, you understand: that would be irresponsible. It is therefore heartening to report that ordinary workers in our top companies have been doing their duty. Last year they settled for – a choice may have been mentioned – rises of just 1% while much-needed increases averaging 12% were distributed around the boardrooms.
That was just the average. According to a survey published yesterday by the corporate governance analysts Manifest and the pay consultants MM&K, executive remuneration went up by 41% in 25 of the FTSE's 100 firms. This took average pay to £4.8 million. Pick apart the deals – base pay, bonuses, incentives – and "remuneration receivable" rose to £4.2 million.
Meanwhile, the OECD reported that British pension funds have been among the worst performers in the developed world over the last decade. Savers in Chile and Korea did better. One reason, reportedly, is that our funds put more money into stocks and shares than their counterparts elsewhere. The performance of FTSE 100 firms is a benchmark for those very shares.
How those companies fare is also one guide, traditionally, to the condition of the economy. Upon their corporation tax the Treasury depends. Yet while 12% rises were being handed out as rewards – the median was a mere 10% – Britain was heading back into recession. The contrast is striking, don't you think?
It's not half as odd, even in hindsight, as those impassioned arguments we heard at the time of the Budget on why a cut in the top rate of income tax was imperative. The case was made for the FTSE bosses even as their remuneration was exceeding 200 times average total pay in the private sector. While George Osborne did as he was bid, a new British record in income inequality was being set.
Satire is not my forte: it is beyond me to make any of this up. Controversy over executive pay is fast becoming a British tradition, yet nothing important changes. These people are named, time after time, but not shamed. Moral pressure, when the concept is even recognised, is irrelevant to them. Measures of success – failure is not considered – become ever more fantastical. We have an oligarchy on our hands.
At the top end of the FTSE scale, where the smallest pay package is worth at least double the average for the 100, rewards test credulity. At the pinnacle of the heap sits Bob Diamond of Barclays. Set aside the baffling complexity – by no accident – of his long-term arrangements, short-term incentives and the £5.57 million "tax equalisation" payment made when the executive moved from New York to London (that is, his tax bill got paid), and what do you find?
Last year, Mr Diamond was able to lay hands on £20.9 million in salaries, bonuses and the rest. That was cash in hand, if he wanted it, in 2011 alone. Strip out anything deferred from previous years, and the executive still received £17.7 million.
But perhaps, you say, Mr Diamond is the most brilliant banker ever born. Don't the City's defenders often allude to the fantastic rewards granted to top football players, and remind us that, as in sport, there is fierce competition for talent, with salaries to match? Those advocates forget to mention that underperforming strikers get dropped. In February, it was reported that Barclays profits fell by 3% in 2011.
Behind Mr Diamond in the big-money list came Sir Martin Sorrell of the advertising and media multi-national WPP. His remuneration rose by 60% last year, to £11.62 million, though he could at least point to an 18.5% increase in profits. Some ungrateful shareholders have noticed, however, that 18.5% is a bit less than 60%, and have threatened to vote down the company's remuneration report at today's annual meeting.
If that happens, Sir Martin will no doubt be annoyed, perhaps even embarrassed, but no wounds will be inflicted on his wallet. Even now, despite all the scandals, such votes are not binding, merely "advisory". Vince Cable, the Business Secretary, is still pondering a reform regarded as fundamental, even elementary, by students of corporate governance.
To his credit, the minister's first instinct was to impose annual binding votes. The first instinct of those liable to be affected was to avert outbreaks of shareholder activism. Labour now alleges that Cable is weakening under pressure. The idea that the people who actually own the companies should have a say in how much executives – their employees – should be paid is too revolutionary. A binding vote every three years is the likely compromise.
Shareholders would have to know what they were voting on, of course. The FTSE firms and other big concerns have made executive pay a matter of fiendish complexity, mostly to obscure the difference between success and failure. As though to prove how bizarre the situation has become, Dr Cable is struggling even to come up with a "single-figure" definition for remuneration. The rest of us call it pay.
The FTSE 100 index lost 6% of its value last year. Those who run the companies involved would no doubt blame tough conditions within the global economy, uncertainty in the financial markets, the eurozone, or – for why not? – anything else that comes to mind. Some of the explanations are accurate. No doubt that's why those ordinary employees got an average of 1%, or lost their jobs. So where did the 14% average come from, and by what justification?
An oligarchy takes what it can get. Talking to the Financial Times last week, Sir Martin Sorrell declared his remuneration "fair" and "payment for performance". The implication, remarkable when you think about it, was that WPP's world-wide profits depend on one man alone.
So which comes first? The vast rewards or the vast, unfettered arrogance? The real problem with executive pay is this: those claiming big money truly begin to believe the world is populated by little people.
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