When the former Royal Bank of Scotland boss Fred Goodwin reluctantly agreed, in the wake of the bank’s collapse and nationalisation, to cut his annual retirement income to £342,500 a year from £555,000, it clearly illustrated the excessive amounts of cash stashed away in boardroom pensions.
Almost all Britain’s largest companies – and many of its medium-sized ones – went into the financial crisis of 2008 promising to pay pensions worth about two-thirds of an executive’s final salary.
In Goodwin’s case, RBS had originally set aside a pension pot of about £27m to pay him an annual retirement income of £703,000, before the accountant-turned-banker took a large lump sum out of his fund in 2009 and reduced the annual figure to £555,000.
BP’s former chairman Lord Browne was in charge in 2005 when the Texas City oil refinery caught fire, killing 15 workers. He retained his pension, worth about £1m a year, when he retired two years later.
Successive governments, under pressure to reduce the gross inequality between workers’ and executive pensions, have had only one answer up to now – to cap the tax break offered to the highest paid. At first the cap was set at £1.8m, before being reduced over time to the current level of £1m.
The idea is that sums amassed above the cap attract a punitive tax rate, making it uneconomic to keep saving above that point in a pension.
If it takes about £100,000 to buy an annual, inflation-linked retirement income of £3,500, the most an executive can hope to gain from a £1m pension pot is £35,000. Clearly, even a manager who fails at a basic task such as making sure his company is a going concern (Goodwin) or assessing likely risks to the company’s reputation (Browne), thinks they are worth far more than this.
The response from remuneration committees might have been to tell board directors that the government obviously wanted to end the era of excessive rewards and they would therefore stick with the upper limit. Instead they have sidestepped the cap and breached its spirit, allowing them, in the main, to replicate the old system with cash top-ups to directors’ annual pay.
Until last year, as an example, Lloyds Banking Group was sending its chief executive, António Horta-Osório, a payment in lieu of a pension contribution worth 46% of his £1.2m base salary. And he was far from alone in enjoying this.
Then the Investment Association came riding to the government’s rescue – though it would say, rightly, that it works on behalf of fund managers and shareholders equally upset by excessive boardroom pay.
Having demanded greater clarity over many years from companies about how and why they pay top executives, the IA said it would be fitting for executives to receive the same contribution to their pension as the average worker, whether directly into the fund or as a payment in lieu.
In response, Lloyds has cut Horta-Osório’s payment to 33%. There should be more cuts to come, though Lloyds has yet to say when this might happen.
Some institutions have gone further. HSBC has said it will, from this year, cut boss John Flint’s pension payment to 10% of his salary – the average for staff – from 30%. The insurer Aviva has told its chief, Maurice Tulloch, that he will receive a pension payment worth just 14% of his salary, compared with the 28% handed to former boss Mark Wilson.
The government, despite much talk about inequality, has done little in this area. The IA should be applauded for its tough line. May many other companies follow suit.
Disney’s Fox deal takes the fight for subscribers to new level
Disney’s completion of its $71.3bn (£54bn) mega-takeover of Rupert Murdoch’s Fox film and TV assets last week cemented its position as the world’s largest media group, as it prepares to enter the streaming wars against Silicon Valley rivals.
The deal was done just days before the launch of a global streaming service by Apple, so Disney will need all the content firepower it can get.
At a stroke, the deal reunites the Marvel universe, adding Fox properties including X-Men and Deadpool to The Avengers, Iron Man and Thor, as well as franchises such as Avatar and Alien, and TV shows including The Simpsons, Modern Family, 24 and Buffy the Vampire Slayer.
Disney is gearing up to launch its own entertainment streaming service, Disney+, later this year, and the Fox deal also gives it control of Hulu, the US streaming service whose hits include The Handmaid’s Tale.
The Fox deal will boost Disney’s film and TV budget to $21bn this year, leapfrogging the voracious Netflix, which is expected to spend $15bn. Disney will now control 36% of the $12bn-a-year US box office market, making it more than twice the size of its closest Hollywood rival, Warner Bros. Swallowing Fox instantly doubled its movie output to 20 blockbusters this year.
Disney has already pulled its content from Netflix in the US as it pursues a strategy of content exclusivity, and is unlikely to want to do a deal with Apple. With rival WarnerMedia also set to launch a streaming service – including HBO and Warner Bros content such as the perennial hit Friends, which Netflix paid $100m to keep for one more year – the battle for subscribers will be immense.
Sky’s new owner, Comcast, is also set to join the fray with a global service from NBCUniversal, owner of Universal Pictures. Content is king, and Fox’s crown jewel assets will be critical in ensuring Disney’s streaming service has a good enough offering to make it a success.
Ashley could win the battle but still lose the war for Debenhams
There’s a boardroom battle raging for control of Debenhams. Sports Direct boss Mike Ashley’s very public wrangle with the struggling department store’s board, led by the former Argos boss Terry Duddy, is the proxy war. Behind the scenes, he is head to head with the department store’s bondholders, led by the US hedge funds Alcentra, Angelo Gordon & Co and Silver Point Capital.
Both sides are trying to protect their investment in a company whose share price has tanked and where trading continues to suffer amid widespread publicity about its financial difficulties.
Ashley’s latest gambit, a £100m offer for Debenhams’ Danish business, the Magasin du Nord chain, was turned down on Friday. It is just the most recent in a barrage of ideas he has used to try to win control of the process at Debenhams.
The company seems set on borrowing £200m more from its existing lenders as part of a debt-for-equity refinancing package that is likely to wipe out shareholders, including Ashley.
Ashley’s other attempt to gain the upper hand, by calling on shareholders to dismiss all but one of the current board and install him as chief executive, remains on the cards. But success there might only lead to his shareholding being wiped out as bondholders call in their debts under change-of-control clauses.
But he may end up the winner after all. Clearly, he is having difficulty digesting House of Fraser, a large business in big trouble requiring heavy investment and management time. Taking on Debenhams as well would only divert his attention from that job as well as his core business, where tough times on the high street are no doubt causing pain.
Debenhams’ staff and suppliers may find it harder to see a positive conclusion. Whoever gains control, it is likely that stores will close, jobs will go and bills will stay unpaid.
