At a time of national austerity one might have expected pay in Britain’s boardrooms to have subsided. After all it is the year of the “shareholder spring” when investors across Britain reportedly rose up against greed among directors.
The reality is a little different. Most of the directors that were ousted, from David Brennan at AstraZeneca to Sly Bailey at Trinity Mirror, were removed because they were not doing a good job, not because they were overpaid (which they were).
In fact, with the exception of the revolt against Sir Martin Sorrell at WPP — where 60 per cent of investors voted against a 30 per cent lift in his pay packet to £13 million — votes against remuneration have been more subdued than in the past.
Research by the respected pay monitoring group, Income Data Services (IDS) shows that in the past year, pay for directors rose six times faster than for the average worker in the same period. Workforces have been on a strict diet but the directors of FTSE100 companies have been gorging themselves on enhanced pay, bonuses and share awards.
The study by IDS found that the average pay award to FTSE100 directors climbed by 27 per cent in the past year with the biggest chunk of the extra cash coming from long-term incentive plans (LTIP). These are share awards intended to encourage aligning the interests of directors with those of the company. But in recent years the tendency has been to layer these awards on top of each other each year, so they have become the fruit machine that never stops paying out.
The value of the median LTIP in the last year surged 81 per cent from a median of £519,625 to £938,888. In the case of chief executives, the median LTIP award climbed £1.6 million. What happens in Britain’s boardroom is at least open to public scrutiny in the annual reports and accounts of companies.
Much of the rapacious high pay in the City’s biggest legal and accountancy firms, in private equity and in hedge funds takes place largely out of public view and scrutiny.
The really worrying aspect of this is that Britain is becoming a society deeply divided by those with wealth and those without it. The Paris-based Organisation of Economic Co-operation and Development recently found that income inequality has risen faster in Britain than in any other advanced countries since the 1970s.
Clearly, there is moral dimension to this that has found itself in the “Occupy Movements” here in Britain and overseas from Wall Street to Tel Aviv. But such inequalities also are economically damaging. The suppression of the incomes of a large part of the population, relative to those at the very top, reduces the purchasing power of the rest ad impacts on economic growth. These trends are exaggerated in Britain by a tax system that hits those on in the middle and on Pay-As-You-Earn (PAYE) particularly hard because they cannot escape the HMRC’s net.
Many of the super-rich have acquired tax domiciles in Jersey and Monaco and through clever tax advice, manage to shelter a large part of the income. Paradoxically, tax avoidance is also prevalent a the state-funded BBC where such stars as Newsnights’ Jeremy Paxman and Emily Maitlis are paid through off-balance-sheet entities.
The societal and economy harm done by the super-rich is examined by the FT’s deputy editor, Chrystia Freeland in her new book, Plutocrats. The Occupy movement took the view that it was the top fiver per cent that were the problem. Freeland looks at a narrower group of 0.1 per cent.
Inequality in incomes is bad enough in the UK where the London Stock Exchange allows plutocrats to turn their shares into hard cash. The float of Glencore in London turned Ivan Glasenberg , the chief executive of the commodities giant, into a $10 billion paper billionaire and several of his partners into single-digit billionaires. What is somewhat disturbing about the likes of Glencore and other natural resources firms, is that wealth is built on operations in less well-off countries.
Some of the most spectacular modern fortunes have been accumulated by billionaires hailing not from the West, but from the new wealth creating economies most notably Russia, China, India and Mexico. The Americans are no slouches with the newly minted tech-billionaires such as Mark Zuckerberg of Facebook.
The difficulty with the plutocrat lifestyle, as Freeland describes it, is that makes those who live it — with their super yachts, private islands and multiplicity of nationalities and homes — remote from the issues that affect ordinary people. They believe that their money entitles them to have a say in public affair, in which they have no experience.
Fortunes may buy some power but it does not buy wisdom or intelligence, not does it necessary contribute to the greater prosperity of nations.
Alex Brummer is City Editor
of the Daily Mail