Sunday 9 January 2011

Sunday, January 09, 2011 Posted by Jake 4 comments Labels: , ,
Posted by Jake on Sunday, January 09, 2011 with 4 comments | Labels: , ,

The ‘tussle for talent’ is the favourite justification given by companies, bureaucracies, and parliaments for generous perks, privileges, and pay. To say the “talent” takes the credit is obvious – that is how they are identified as “talent”. However, whether they deserve all the credit they take is a matter of opinion.

The people who allocate the ‘credit’, and thereby define who the ‘talent’ is, are the bosses of organisations. A report released in October 2010 by Income Data Services demonstrates that the bosses are sure of one thing – they themselves are enormously talented, and they tussle vigorously to reward themselves. In a time when wages are generally stagnating, the bosses determination to tussle for their own talent is evident:

Even boosting the pay of fellow employees, by declaring how talented they are, is not always a matter of generosity or admiration – it can also be to provide a smokescreen. Massive rewards to bankers distracts attention from even more massive rewards to banking bosses. The bankers may be wolves in sheep’s clothing, but in that galloping herd of talented sheepskins there are many sheep in sheep’s clothing getting away with gratifying levels of pay and perks. The degree to which this smokescreen has worked can be seen from the fact that in the years between 1980 and 2007 the pay per worker in the financial sector – i.e. all of them, not just the “talent” – rose from about par to over 1.8 times  the average pay per worker. These figures on pay are from the US,  which the UK strives to match.

Do bankers deserve this largesse? Not if you are listening to Andrew Haldane, Executive Director of Financial Stability at the Bank of England. His 2009 speech explained that the stellar annual returns of 16% in bank shares between 1986-2006 can be attributed solely to gambling with borrowed money. Banks made profits on money they had borrowed, which was fine so long as the roulette wheel was kind. When the bets turned bad, borrowed money had to be paid back. Banks went cap in hand to the taxpayers for bailouts or simply went bust. In the 85 years between 1900-1985 banks produced an average return of 2%. In the 110 years between 1900-2009 the return is a boring 3%.

Where the bankers go others follow. Bankers justify their pay based on the 16% returns they produced, hoping nobody notices its transitory nature. Others, executives and MPs and GPs and more, justify their pay because they work harder and are brighter than the bankers, and so need to keep up.

In a time when the “massively talented” have driven organisations into ruin and bankruptcy – banks, insurance companies, car companies, construction companies, quangos, and entire nations – who is actually best placed to say who the talent is, and how they should be rewarded?

Directors’ pay is set by fellow directors, sitting as non-execs on each-others' remuneration committees. Was the meaning of “quid” in “quid pro quo” ever more apt? Perhaps the ‘talent’ should have their rewards set by their customers? But they would never let that happen in any meaningful way. No matter how dim a light is hidden under the bushel of pay and perks, it is not so dim as to expose their talent to that assessment.

We have a very recent example of this in a survey conducted by the Independent Parliamentary Standards Authority (IPSA) on MPs’ expenses. The Parliamentary Expenses Debacle, let’s not use the ‘scandal’ word, demonstrated in stark terms how talented our MPs decided they themselves were. And how important, in the tussle for their own talent, it was for them to supplement their incomes. And how vigorously they would put their talents into that tussle. IPSA asked the public, the MPs’ “customers”, questions including how much they trusted MPs to regulate themselves (they don’t trust them), and whether they should have first class travel and taxis paid for even if cheaper alternative are available (no).

In the end, it is not the "companies" that are obsessed by paying what is needed to hold on to the "vital few", but the "vital few" who are self-obsessed, and tussle to hold on to their image of “talent” and the associated benefits.

And who pays for these benefits? You do, making your contributions every day through inflated bank charges, wretched returns on your savings, rampant gas bills, excessive taxes, and just about every other transaction you are party to.


  1. Incomes Data Services reported that for the last financial year (to April 2011), FTSE 100 directors got a 49% increase in total earnings.

    Steve Tatton, editor of the IDS report, comments: “Britain‟s economy may be struggling to return to pre-recession levels of output, but the same cannot be said of FTSE 100 directors' remuneration.”

  2. There is another statistic that is always ignored in these analysis that is inherently tied to pay levels. This word is an anathema to the left - the word "Responsibility".

    As corporations got bigger and became global, as banks (thanks to Gordon Brown doing away with the mergers and monopolies commission) became "Too big to fail", the responsibility of staff also grew.

    The managing director of a once British Firm, is now the MD of a Global Firm; the trader who once worked for a small bank trading with a few million pounds, now trades with a few billion pounds.

    As the level of responsibility increases, so does the pay to reflect the risk of getting that job wrong.

    Want to reduce pay levels? Then break up the companies. Let's have 100 MD's on 100k instead of 1 MD on 1,000,000. That is how you redistribute wealth.

    1. If you believe in the market valuation of companies then in real terms the value of the FTSE100 index less than doubled between 1984 and 2013:

      On the other hand FTSE100 bosses' pay was
      a) 20 times the average UK salary in the 1980s
      b) 180 times the average UK salary by 2013

  3. Market valuations are nothing more than that. "Valuation", to be more precise they are an indicator of an investors confidence in that stocks future and very often has nothing whatsoever to do with the underlying fundamentals.

    My point was to do with size and responsibility, and you've failed to address that in your response.

    We should be looking at pay compared to something else, something solid such as The number of staff, the size of its contracts or the amount of clients capital that manager is dealing with, ideally all three and more depending on the business, as I clearly demonstrated above.

    "The managing director of a once British Firm, is now the MD of a Global Firm; the trader who once worked for a small bank trading with a few million pounds, now trades with a few billion pounds."

    If your commission is 10% of your annual trades, than of course this years number is going to be 20x more than twenty years ago, because of the size of risk/portfolio/client base. Why aren't you using like for like? What was the percentage for 20 years ago?


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