Are you one of Lloyds Banking Group’s 30m customers in the UK? Do you fancy voting on chief executive António Horta Osório’s pay package? He got £6.4m last year, so you may have a view. Or perhaps you are one of the 16m people with a Tesco Clubcard. Do you think Dave Lewis, the supermarket chain’s chief executive, who collects about £5m in an average year, should take home less? Do you want an annual poll to make it happen?
Welcome to one of 20 proposals from a group of academics led by Prof Prem Sikka in a report commissioned by Labour’s Rebecca Long-Bailey, the shadow business secretary, and John McDonnell, the shadow chancellor. As a way “to curb undeserved executive pay and also create mechanisms for better distribution of income”, giving consumers a vote on remuneration definitely counts as radical. The only way for those bonuses would be down.
One can hear the spluttering in boardrooms already. And that’s before they have seen the proposal about how boards of persistent offenders on pay could ultimately be removed by “eligible stakeholders”, meaning consumers plus employees, as well as shareholders.
One could call the agenda hopelessly idealistic or crudely populist. Either way, these consumer-related ideas in the report are probably not going to be adopted, even if the tamer ones about banning share options could be. One suspects even McDonnell, who has gone oddly quiet on his proposal to hand 10% ownership of all large companies to an employee fund, will conclude that a policy of enfranchising consumers on boardroom pay on the basis that they have a bank account or join a loyalty scheme will not fly. Labour would be wise to stick to the more realistic goal of getting employee representation in boardrooms.
Yet, before the corporate club dismisses Sikka & co’s thesis entirely, it should take a cold look at the accompanying analysis of what’s gone wrong with executive pay in the UK. Those passages are wearingly familiar and mostly correct.
Pay rates are massively skewed in favour of tiny minority at the top. There is little relationship between pay and performance. Voluntary codes of behaviour have achieved next to nothing. Fund managers, who successive governments have trusted to act, have been feeble. Basic notions of accountability have been eroded and resentment towards big business has deepened. Yes, that’s roughly the story of the past 30 years.
The question companies should ask themselves is whether their near-universal resistance to meaningful reform could prove a tactical mistake. Theresa May, when she briefly championed the idea of workers of boards, was lobbied out of the proposal. If that’s the corporate reaction to a gentle Conservative-led reform, do not be surprised if somebody comes up with something properly frightening. The head-in-the-sand approach on pay inequality is a serious long-term problem for business.
Thomas Cook’s mystery tour
Thomas Cook’s second profits warning of the year was a mystery tour. At first glance, the chief executive, Peter Fankhauser, seemed to be repeating his grumble about how the long hot summer persuaded Brits to stay in their gardens rather than head for Spanish beaches, thereby depriving Thomas Cook of juicy income from the “lates” market.
But then came an unfamiliar accounting detour. About £28m of SDIs, or separately disclosed items, will not be treated as exceptional after all but will be charged against top-line profits. These items are a rag-bag collection. They cover Tunisian hoteliers who cannot pay their debts to Thomas Cook, the costs of rescuing airline passengers who suffered disruption and plain old restructuring charges that are now reclassified as an everyday cost of running a tour operator.
Investors could probably handle a harder definition of “exceptional”, even it’s surprising to see it appear only two days before the full-year results are published. But then the charabanc took an alarming lurch as Thomas Cook said borrowings at the end of September were a colossal £389m – about £100m more than expected.
Foreign exchange adjustments and “finance lease extensions” took the blame but, hey, don’t worry too much suggested the company, because “lenders remain supportive”. Unfortunately, the point at which companies feel the need to say their bankers are nice folk really is also the moment when shareholders worry. Cue a 23% slump in the share price to 37.5p.
The reaction looks fair. The token dividend, costing a mere £9m, has been obliterated and Fankhauser offered few firm details about when banking covenants start to bite. On the latter score, he gets a chance with Thursday’s full-year numbers to be more open. He should take it.
