WE all know that bosses keep awarding themselves bigger and bigger pay rises, right? And that FTSE 100 CEOs’ comp keeps on rocketing? Wrong. The facts paint a far more complex picture, and deserve a proper airing.
PwC has crunched the numbers, and the outcome is striking. CEOs’ median bonus payouts for 2013 were one per cent lower than in 2012 and suffered their third consecutive decline despite a rebounding economy and a 10 per cent jump in the FTSE 100 last year.
But what about other elements of pay? Nearly a quarter of bosses received no base pay hike, and for those who did it was usually around the 3 per cent mark.
So what’s the catch? None, it appears: median total pay, including long-term incentive pay-outs, increased by just 0.5 per cent. There appears to have been a dramatic tightening of corporate governance, with boards now making sure that pay hikes are closely correlated with performance and kept strictly under control.
The PwC research (not an April Fools’ joke, I hasten to add) analysed FTSE 100 companies where bosses have been in place for two years or more.
The findings confirm that shareholders are not absentee landlords in modern Britain. They exercise influence, albeit frequently behind the scenes and in ways that outsiders are often unaware of. Of course, there are still problems, and some incompetent buffoons still pick up rewards for failure, but the system is now working much better than it was.
But I’m starting to worry that this whole process could soon be going too far. There is a danger that top bosses could start to be under-rewarded, that shareholders will become obsessed with preventing abuse, while neglecting to reward exceptional performers, that the best will continue to migrate to private equity (where management incentives are very closely aligned to those of investors, but rewards can be massive) and that it will become harder to attract global high-flyers to the FTSE 100. If all of this did happen, it would be a disaster for the British economy: large firms are hugely important employers and vital to the City’s success.
We are not there yet, luckily. The PwC research should cheer advocates of capitalism: companies are exercising self-control. It’s time for the political meddlers to back off.
FRANCE’S BLAIRITE COUNTER-REVOLUTION
From Marxist revolutionary to Clintonite centrist in just two years: even by French standards, that is an astonishingly fast U-turn for Francois Hollande, France’s horrendously unpopular president. His appointment of Manuel Valls – a self-described Blairite – as the new prime minister confirms that the mad lurch to the left is over. Two other interesting factoids: both the new PM and the new Mayor of Paris are Spanish-born. At a time when the National Front is on the up again in France, it is great to see that outsiders can still rise to the top.
At first sight, George Osborne’s call for full employment sounds like some bizarre return to the bad Keynesian days of the 1970s, when clueless politicians thought that they could control demand in such a way as to eliminate joblessness. They ended up with rising unemployment and increasing inflation. Fortunately, that is not what the chancellor has in mind. He is merely seeking to reclaim a sensible and suitably caveated variant of the concept of full employment from the left, and believes that this can be achieved through welfare reforms and tax reductions on low-earners.
I like the idea, but he needs to be careful. The monstrous Help to Buy policies are still inflating demand, and the chancellor has damaged supply-side incentives for many 40p taxpayers. Other than that, however, the aspiration makes sense.