It's Fat Cat Wednesday! FTSE bosses have already earned the average UK wage just two-and-a-half days into the working year

"Fat Cat Wednesday 2017" 

by the High Pay Centre

Welcome back to work. FTSE100 bosses will have already clocked up an average annual UK salary just two-and-a-half days into the working year

• Top bosses will already have made more money by the first Wednesday of 2017 than the typical UK worker will earn all year
• The average pay ratio between FTSE100 CEOs and the average total pay of their employees in 2015 was 129:1
• Making the publication of pay ratios compulsory will help track progress on closing this gap

It’s Fat Cat Wednesday (4.1.2017). After just two and a half days Britain’s top bosses will have made more money than the average UK worker earns in an entire year, according to High Pay Centre calculations.

The figures show that pay for top company executives returning to work this new year will pass the UK average salary of £28,200 (note 2 below) by around mid-day on “Fat Cat Wednesday”.

After a year in which “elites” were criticised for being out of touch and ignorant about the concerns of ordinary people, these pay gap figures confirm that there are dramatically different rates of pay at the top compared with what everyone else receives.

Median FTSE100 CEO pay in 2015 was £3.973 million (note 1 below). We found that even if CEOs are assumed to work long hours with very few holidays, this is equivalent to a rate of pay of over £1,000 an hour (note 3 below). The “national living wage” for over 25s is £7.20 an hour.

High Pay Centre director Stefan Stern said: “Our new year calculation is not designed to make the return to work harder than it already is. But ‘Fat Cat Wednesday’ is an important reminder of the continuing problem of the unfair pay gap in the UK. We hope the government will recognise that further reform to pay practices are needed if this gap is to be closed. That will be the main point in our submission to the business department in its current consultation over corporate governance reform.

“Reality check” needed

“Effective representation for ordinary workers on the company remuneration committees that set executive pay, and publication of the pay ratio between the highest and average earner within a company, would bring a greater sense of proportion to the setting of top pay,” Stern added.

The huge increase in top pay in recent years seems to have arisen because of so-called “performance-related pay” awards. But as new research from Lancaster University Management School has revealed, the link between pay and performance has in fact been “negligible”:

GUARDIAN: 'Negligible' link between executive pay and firm's performance

INDEPENDENT: Link between high executive pay and performance ‘negligible’

FINANCIAL TIMES: ‘Negligible’ link found between executive pay and performance

This is not just a FTSE100 company problem. AIM-listed Asos is being criticised today by the GMB union for a similar vast gap in pay created by the chief executive’s “Long Term Incentive Plan” (for more information contact jon.parker-dean@gmb.org.uk).

And excessive private sector pay deals set a bad example to some public sector and not-for-profit organisations, as controversy over the pay for some university vice chancellors, school “superheads”, NHS Trust chief executives, local authority leaders and some charity bosses suggests.

The continuing pay gap creates problems for us all.

Notes:

1. The median pay for a FTSE 100 CEO in 2015 was £3.973 million, based on the publicly disclosed “single figure” measure http://highpaycentre.org/pubs/10-pay-rise-thatll-do-nicely (There are different ways of measuring executive pay, and the single figure measure differs from the “pay realised” figure and the pay awarded figures available from Manifest.)

2. Median earnings for full-time workers in the UK (who had been in their job for at least 12 months) were £28,200 in 2016https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/annualsurveyofhoursandearnings/2016provisionalresults. This represents an increase from £27,645 in 2015.

3. Even when making the generous assumption that FTSE 100 CEOs work 12 hours a day, including three out of every four weekends, and take fewer than 10 days holiday per year, this still works out at about £1,009 per hour, meaning that it would take around 28 hours’ work to surpass the UK average of £28,200 – some time around mid-day on Wednesday 4th, assuming they begin work for the year on Monday January 2nd.

4. The High Pay Centre is an independent think-tank set up to examine corporate governance and pay at the top of the income distribution. We carry out research aimed at developing a better understanding of top rewards, company accountability and business performance.

5.

The 10 highest paid CEOs in 2015 and 2014 were as follows:

Read More

RBS and Lloyds CEOs get paid more millions, despite losses and profit falls

SOURCE GUARDIAN: RBS pays chief executive Ross McEwan £3.8m as it reports £2bn loss

The bank’s full-year results for 2015 follow its admission last month that it was on track to report its eighth consecutive year of losses because of a £2.5bn hit to profits for a string of problems, including having to pay compensation for payment protection insurance mis-selling. Shares in the bank, 73%-owned by the taxpayer, slumped 10% in early trading after the figures were announced. McEwan – who has received the highest pay for a chief executive of the bank since the bailout – said further problems lay ahead for the bank, particularly from “big conduct” issues. Among these is a penalty, yet to be determined and which could run to billions of pounds, for the way it sold US mortgage bonds in the run-up to the 2008 banking crisis. The results – which followed a £3.5bn loss a year ago – mean that the bank has incurred more than £50bn of losses since 2008, when £45bn of taxpayer funds was used to prevent it from collapsing. The performance of the bank was accompanied by disclosures about pay. It said 121 of its staff received more than €1m (£800,000) during the year while its former chief executive Stephen Hester, who was forced out in 2013, received £2.1m from bonus schemes that dated to his time at the bank.

SOURCE GUARDIAN: Lloyds hands chief executive £8.5m pay package

Lloyds Banking Group has handed its chief executive an £8.5m pay deal and ignited its share price by announcing a special dividend – despite reporting a 7% fall in profits. António Horta-Osório’s pay was disclosed alongside 2015 financial results showing profits had been knocked to £1.6bn by a further £4bn charge for mis-selling payment protection insurance (PPI). The bank, bailed out in 2008, has now incurred a total bill of £16bn for the long-running scandal which drove it to a fourth-quarter loss. The government has been gradually cutting back its stake, from 43% to less than 10%, but despite Thursday’s rally the shares remain below the 73.6p break even price. He was also handed shares worth £3.6m in a long-term incentive plan, which could pay out in three years’ time. His 10-strong management team were handed shares worth £17m in the same scheme. The total bonus pool was cut to £353m from £369m. Sixty-six staff received total pay of €1m (£800,000) or more.

OUR RELATED STORIES:

The FCA fails again. We don't need a review of banking culture, we need a review of regulatory culture

Privatisation of RBS: will the taxpayer get their money back let alone make a profit? Osborne says yes, National Audit Office says no!

Is it time to stop bashing bankers? Not when you look at what they’ve got caught doing since the 2007/08 bank bust

In the UK, £136bn in bonuses to bankers between 2004 and 2013. Globally, £166bn in fines for rigging, laundering, etc. But no bonus clawbacks

Who needs fat cat pay? The Germans don't. See the comparison with the UK

The incomes of the bottom 90% have hardly risen in 20 years, whilst the top 1%’s has doubled

Riposte: What does banking contribute to UK Plc? 7 myths exposed, and why we must rein them in

As of 2014, the £20bn paid out by the banks for their PPI mis-selling is more than all their taxes paid since 2008

The bailout of our banks continues. Not from the taxpayer, but from your pathetic savings interest rates. See the BofE data

Financial Reporting Council says just 2% of bank and building society audits are up to scratch

The Interest Rate Swaps that screwed 40,000 small and medium sized businesses: how the regulator allowed the banks to be judge and jury for their own dodgy deals

RBS accused of seizing small business assets and selling them at knock-down prices to an RBS subsidiary

The government wants you to think we made a profit on sale of Lloyds Bank shares. Actually we made a thumping loss!

How re-mortgaging covered up the theft of Britain's growing wealth in the boom, and helped cause the bust

Read More

HSBC has decided to stay headquartered in the UK. Shame. We were hoping they’d move to Hong Kong

KJ and Fee explain...

SOURCE GUARDIAN: HSBC to keep its headquarters in London, after concessions from chancellor

HSBC is to keep its headquarters in the UK after a 10-month review during which time the government has made a series of changes regarded as favourable to the bank. After the May 2015 Conservative election victory the chancellor, George Osborne, has backed away from creating rules intended to toughen up the regime for holding senior bankers to account. He had said he would reverse the burden of proof but has reverted to the more usual system of bankers guilt having to be proven. He also changed the system for taxing banks. A bank levy on balance sheets, which hit HSBC hardest of all the banks, is being scaled back and an eight percentage point corporation tax surcharge on profits is regarded as hitting its smaller rivals harder. Analysts have calculated that the changes mean HSBC will pay £300m to the exchequer – down from £1bn under the previous bank levy system. 

SOURCE BLOOMBERG: HSBC sued over drug cartel murders after laundering probe

Families of U.S. citizens murdered by drug gangs in Mexico have sued HSBC, claiming the bank can be held responsible for the deaths because it let cartels launder billions of dollars to operate their businesses. The lawsuit brings fresh scrutiny to the Mexican activities of HSBC, which in 2012 paid $1.9 billion to resolve a criminal investigation into whether it violated U.S. sanctions laws and laundered at least $881 million on behalf of drug cartels. The new case recounts a series of murders in 2010 and 2011 in horrific detail, arguing that the bank should be held to account for them under the U.S. Anti-Terrorism Act. Lesley Redelfs was four months pregnant when she and her husband, Arthur, were shot by the Juarez cartel after leaving a children’s birthday party hosted by the U.S. Consulate in Ciudad Juarez, where she worked. Jaime Zapata and Victor Avila Jr. were special agents for Immigration and Customs Enforcement, driving to Mexico City when they were run off the road by two vehicles filled with hit men from the Los Zetas cartel, who then opened fire. Avila survived. Rafael Morales Jr. was abducted on his wedding day, as were his brother and uncle, and the three died of asphyxiation after members of the Sinaloa cartel wrapped duct tape around their heads. HSBC already is among banks facing a lawsuit from families of U.S. soldiers killed or injured by attacks in Iraq on accusations that the firms helped Iran process transfers and finance Hezbollah and other militant groups. 

OUR RELATED STORIES:

The FCA fails again. We don't need a review of banking culture, we need a review of regulatory culture

Privatisation of RBS: will the taxpayer get their money back let alone make a profit? Osborne says yes, National Audit Office says no!

Is it time to stop bashing bankers? Not when you look at what they’ve got caught doing since the 2007/08 bank bust

In the UK, £136bn in bonuses to bankers between 2004 and 2013. Globally, £166bn in fines for rigging, laundering, etc. But no bonus clawbacks

Who needs fat cat pay? The Germans don't. See the comparison with the UK

The incomes of the bottom 90% have hardly risen in 20 years, whilst the top 1%’s has doubled

Riposte: What does banking contribute to UK Plc? 7 myths exposed, and why we must rein them in

As of 2014, the £20bn paid out by the banks for their PPI mis-selling is more than all their taxes paid since 2008

The bailout of our banks continues. Not from the taxpayer, but from your pathetic savings interest rates. See the BofE data

Financial Reporting Council says just 2% of bank and building society audits are up to scratch

The Interest Rate Swaps that screwed 40,000 small and medium sized businesses: how the regulator allowed the banks to be judge and jury for their own dodgy deals

RBS accused of seizing small business assets and selling them at knock-down prices to an RBS subsidiary

The government wants you to think we made a profit on sale of Lloyds Bank shares. Actually we made a thumping loss!

How re-mortgaging covered up the theft of Britain's growing wealth in the boom, and helped cause the bust

Read More

It was money and mollycoddling that ruined the banking industry. We don't need a review of Banking Culture, we need a review of Regulatory Culture.

In December 2015 the Financial Conduct Authority (FCA) ditched its Banking Culture Review. In its 2015/16 plan the FCA promised this “Culture Review” of banks stating: 


“In 2015/16 we will conduct a new thematic review on whether culture change programmes in retail and wholesale banks are driving the right behaviour, in particular focusing on remuneration, appraisal and promotion decisions of middle management, as well as how concerns are reported and acted on.” 

A review into whether bankers are Paid, Praised, and Promoted too much for doing the wrong things? And how they treat whistleblowers telling on these wrong things? What's not to like?

Was this FCA U-Turn due to road blocks raised by banking lobbyists and their little helpers in government? Or is it a realisation that the bankers are not responsible for their misdeeds. A realisation that bankers are suffering too, suffering from Affluenza? A realisation that the real cultural problem is actually somewhere else?

“Affluenza” is an affliction brought on by having too much money. The Affluenza Defence pleads that the malefactors have so much money and are so molly-coddled they can’t tell right from wrong. The defence attorney asserts the poor rich things, brought up by weak indulgent guardians, earnestly believe money can make any problem go away. Therefore, having been deprived of a conscience due to this surfeit of cash and lamentable guardianship, the affluenza-afflicted individuals can’t be held responsible for their acts. The fault lies not with the perpetrator, but with the money and the carers.

It is a defence successfully deployed to avoid retribution on both sides of the Atlantic.

In the USA a wealthy youth escaped jail, getting away with probation, having been convicted in a Texas court for a reckless intoxicated (by booze) crash resulting in the deaths of four people. The Guardian newspaper reported:
"During the sentencing phase of Couch’s trial, a defense expert argued that Couch’s wealthy parents coddled him into a sense of irresponsibility – a condition the expert termed “affluenza”. "

In the UK wealthy bankers get away scot free for mischief resulting in a reckless intoxicated (by bonuses) crash that caused The Great Recession. Their fines paid by shareholders (collapsing shareprice and dividends) and customers (higher profit extraction). 

The bankers had been in trouble before this crash and got themselves into trouble again after it, convicted of various frauds and scams including LIBOR frauds, Payment Protection Insurance (PPI) scandals, Interest Rate Swaps Agreements (IRSA) scams, and more. Clearly a deeply ingrained cultural problem. But, following the Affluenza argument, perhaps not among the bankers.

Like spoiled children around the world, the British banking industry has learned by repetition they can get away with anything. Once their guardians have got past all the scolding and finger wagging, they quietly pour water over their reforming zeal, put away their punchy pronouncement, and everyone carries on more or less as before. 

The grim truth is ripping off people is legal in British law. Consumer protection legislation states so long as the ‘average consumer’ is not cheated just about anything goes. The ironically named Office for Fair Trading even provides a helpful flowchart, to ensure even the most weak witted merchant will understand what their ripping-off rights are. In the simplest of terms the flowchart shows the above "average consumer" is protected, the below average is not.  Most things in nature follow the Normal Distribution, which means half the population is 'below average' and so is fair game.

Annotations in RED are by us.

The “Culture Review” of bankers was cancelled not to protect the bankers. It was cancelled to protect the guardians – the regulators, the courts, and the law makers in Parliament. Not because it would expose their powerlessness in the face of bankers' reckless greed and ruthless lobbying, but it would reveal something far worse. It would have revealed to all us ripped-off Britons that the banking culture is absolutely in keeping with the culture in ripped-off Britain.

Read More

The Free Market in executive pay is Phoney. ONS data shows top execs pay themselves more even though the free market values them less.

"the richest are rich not because they are gaming the system but – by and large – because they’re very talented, took risks and worked their guts out."

At least, that's what an article in the Spectator magazine would have us believe.

No doubt many of the richest are very talented, take risks, and work their guts out. But 'richest' is a relative thing: to be 'richest' you have to be more rich than other rich people, who themselves have to be richer than not rich people. By correlating 'richest' with 'talent' and 'hard work' the Spectator, and they are not alone, suggests - by and large - the richest are more talented and hard working than everyone else.

So is talent and hard work the real reason - by and large - for richness? Whether the richest bankers have more talent, take greater risks and work their guts out so very much more than a professional soldier, scientist, or surgeon is open to a scrutiny we won't conduct in this particular post. 

In any case Free Marketeers, among the greatest advocates of high pay, would say none of that talent, risk and guts stuff matters. Free Marketeers would say Merit doesn't define Pay, Pay defines Merit. The Free Market, they assert, may not be infallible but it quickly corrects itself. A Free Marketeer would assert if you are regularly paid a lot over the medium term - i.e. not just a spot of luck with the National Lottery - then you must be meritorious. 

Is that actually true? Or has the Market for Pay been captured by those being paid the most to ensure they continue to be paid the most? Has the Free Market in executive pay become a Phoney Market?

Consider top executives of companies listed on the London Stock Exchange. The Free Market puts a value on their companies by pricing the shares. In a large and liquid market, such as the FTSE100, the price set is a genuine attempt by investors to make themselves richer. Driven by selfish motives these investors' valuation of companies is an honest one. 

On the other hand, the pay of the top executives in these companies is set by their Remuneration Committees. Committees which to a large degree are made up of other top executives who themselves depend on their own Remuneration Committees for their pay. According to a report by the TUC, "A Culture of Excess", there is a huge cross-dependency of top executives setting one another's pay:

"Remuneration committee members are drawn from a narrow constituency, consisting mainly of other board members. In 2014, 246 out of 383 FTSE 100 remuneration committee members (64 per cent) held at least one other position on another board. Over a third of FTSE 100 companies have an executive director from another company on their remuneration committee. Two thirds of FTSE remuneration committees share one member with another remuneration committee from the FTSE 100."

We can see how executive pay has ramped up from a report, "How to make high pay fairer", published in July 2014 by the High Pay Centre think tank. The report stated:

"Typical annual pay for a FTSE 100 CEO has risen from around £100,000-£200,000 in the early 1980s to just over £1 million at the turn of the 21st century to £4.3 million in 2012.1 This represented a leap from around 20 times the pay of the average UK worker in the 1980s to 60 times in 1998, to 160 times in 2012 (the most recent year for which full figures are available)."

Contrast this rocketing pay with the declining value placed by the Free Market on companies traded on the London Stock Exchange. The Office for National Statistics (ONS) provides some handy graphs to help us out here:

1) In nominal terms (not adjusted for inflation) the value of the FTSE All Share in 2014 (which had done better than the FTSE100) was over 13 times higher than the 1980 level, while FTSE100 CEO pay has gone up over 28 times in nominal terms:

2) However:
a) The inflation adjusted values show the total value of the market in 2014 is well below its value in 2000.
b) Compared to the UK GDP, the value of the stock market is well below what it was in the 1990s.

Comparing this with the bosses' multiple of average pay (effectively boss pay indexed to average pay), we see even as the Remuneration Committees value themselves more, the Free Market values their companies less.

Why is this important? Two of the reasons are:

1) It is said that burgeoning top pay does not hold down bottom pay. That may be true if the question is simply diversion of bottom pay into top pay packets. 
At Barclays, a favourite dartboard of high pay protesters, it wouldn't make much of a difference to it's lowly employees by taking a chunk out of top pay.

But top pay is justified by profits. And according to Gavyn Davies, economist and hedge fund manager and former chairman of the BBC, two thirds of company profits come from holding down bottom pay.


2) As those at the top, who direct the government of Britain, no longer need public services they don’t feel the pain when those  services are cut. Those who can afford private health, private education, and those who don’t live in areas that need strong policing, don’t notice when what they don’t need is not there.

And I suppose it would be churlish of me to mention the taxes of the 1% contribute to the welfare state that allows them to keep their staff on low wages knowing they will be topped-up with benefits, and keeps their staff healthy and educated enough to turn up to work without having to pay them enough to buy those services themselves. 

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The real reason the top 1 percent pay a vast share of income tax is the rest of us do not get enough income to chip in more! Do not be grateful to them for their taxes, get them to pay us more wages!

Writing in the Daily Telegraph in 2013, Boris Johnson said in a piece titled "We should be humbly thanking the super-rich, not bashing them":
"Now, the top 0.1 per cent – about 29,000 people – pay an amazing 14.1 per cent of all taxes."

Boris’ figure seems to come from a Freedom of Information (FOI) response from HMRC [which we have looked for but can’t find it where it is supposed to be published – we would be grateful for a link to this]. However Boris was mistaken. The Daily Mail, clarified this as 14.1 percent of Income Tax, not of All Tax. Boris' mistake is often heard in the media, with people claiming and some actually believing the top 1% pay for most of public spending.

So, what difference does "Income" versus "All" make? Actually, a lot.

HMRC doesn't publish the top 0.1% tax normally, except in FOI responses. However HMRC estimates for 2015/16 show the top 1% do pay over a quarter, about 27.5%, of Income Tax. HMRC figures also show Income Tax for that year made up 31.7% of "All Taxes". 

Therefore the top 1%'s income tax makes up just 8.7% of "All Taxes" (31.7% x 27.5% = 8.7%).

It has been a common tactic to use the enormous share of Income Tax the very rich pay to throw a smokescreen of eye-lowering "don't look too hard" gratitude over the enormous amount of income they receive. And yet it is true, the top 1% do pay a share of Income Tax disproportionate to their population. 


The reason for this is low pay in Britain has meant most people couldn't afford to pay a greater share of Income Tax even if they wanted to. Far from having spare cash to contribute in Income Tax, a report by the Resolution Foundation think tank in 2012, "Gaining from growth: The final report of the Commission on Living Standards" shows the bottom 50% actually have to borrow money to cover their living costs. The "Savings Ratio" in the graph below shows what percentage of income each group can save. A negative Savings Ratio indicates they are borrowing.


In a separate press release the Resolution Foundation stated by the 2020 General Election the number of workers on the legal minimum wage will have doubled to more than 10% of the working population. It's due to free-market set wages falling behind the government set minimum wage (laughably renamed by George Osborne as the National Living Wage). If you look at specific sub groups of workers, the proportion on minimum wage in 2020 will be even higher than 10%:

• 15% of female employees
• 25% in micro businesses (businesses with fewer than 10 employees, who had over 8 million employees in 2014)
• 40% in the hospitality sector

It is said by some that burgeoning top pay does not hold down bottom pay. That may be true if the question is simply diversion of bottom pay into top pay packets. However top pay is usually justified by profits. According to Gavyn Davies, (hedge fund manager, former Goldman Sachs partner, and former chairman of the BBC) two thirds of corporate profits have come from holding wages down:

"[If the] decline in the wage share had not occurred, and everything else had (implausibly) stayed the same, then gross profits in the developed economies would have been about one-third lower than they are today and net profits (after depreciation) would have been about two-thirds lower."

So while the 1% may not be directly siphoning off the wages of the 99%, they use holding those wages down to boost their profits and boost their resulting rewards. We can see an example of how executive pay has ramped up from a report, "How to make high pay fairer", published in July 2014 by the High Pay Centre think tank. The report stated:

"Typical annual pay for a FTSE 100 CEO has risen from around £100,000-£200,000 in the early 1980s to just over £1 million at the turn of the 21st century to £4.3 million in 2012. This represented a leap from around 20 times the pay of the average UK worker in the 1980s to 60 times in 1998, to 160 times in 2012 (the most recent year for which full figures are available)."

Creating a growing economic distance between the few and the many creates a deeper problem. As those at the top, who direct the government of Britain, no longer need public services they don’t feel the pain when those  services are cut. Those who can afford private health, private education, those who don't rely on subsidised public transport and subsidised housing, and those who don’t live in areas that need strong policing, don’t notice when what they don’t need is not there.

And I suppose it would be churlish to mention the taxes the 1% contribute to the state allow them to keep their staff on low wages (subsidised by in work benefits) and keeps their staff healthy (NHS) and educated (Schools) enough to turn up to work on subsidised public transport. 

So we should not, as Boris suggested, be "humbly thanking" the super-rich. On the contrary, they should be humbly thanking the rest of us: not for our generosity but for our incomprehension of what is happening. The Golden Rule, "Those who have the gold make the rules", held until relatively recently. When rule-makers began to be chosen by Parliamentary Elections, those with the gold have relied on the rest of us not really noticing they aren't fairly sharing it.

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