British boardrooms risk a backlash if directors’ pay continues to outstrip both corporate performance and national average earnings, a leading investor group warned in December. Releasing its updated guidelines on executive remuneration, the Association of British Insurers, representing about a fifth of the UK equity market, criticised remuneration consultants for encouraging companies and executives to push up pay. Increases in executive directors’ base salaries (6.3% year-on-year) have decelerated but were still rising faster than pay in the economy. Meanwhile, bonuses and the maximum awards available from share incentive schemes had risen sharply, the ABI said. Peter Montagnon, ABI director of investment affairs, warned of “detrimental consequences if the premium commanded by executives rises too far above general levels of pay in the economy or business pay turned down. It can’t go on for ever without something snapping”. The overall climate of relations between shareholders and companies had improved, the ABI said, and the shift towards performance-linked pay was healthy. But it noted most of its warnings, so-called “red tops”, concerned pay. Of the ABI’s 75 red tops, 47 issued over the last year related to remuneration. Contact Peter Montagnon, ABI 020 7600 3333 http://www.abi.org.uk
SERVING PUBLIC INTEREST
Boards must play a key role in ensuring executives’ rewards do not tempt them to behave improperly, according to Rewarding virtue – effective board action and corporate responsibility, by Business in the Community, FTSE Group and Insight.
The report recommends boards should:
– set values and standards for the business;
– think strategically about corporate responsibility in the context of market pressures;
– be constructive about regulation, delivering self-regulation and supporting government intervention to correct market failure;
– align performance management, rewarding responsible success over the long-term;
– create a culture of integrity, setting the right tone at the top and cultivating the right values in the corporate culture;
– use internal control to secure responsibility, safeguarding standards with robust audit and control systems.
Craig Mackenzie, head of investor responsibility at Insight Investment, said: “Corporate responsibility sets the terms of a mutually valuable contract between companies and society. But short-term pressures can lead companies to behave irresponsibly. The board has a decisive role to play in resisting these pressures – serving the public interest and safeguarding long-term shareholder value”. Contact Juliet Davidson, BITC 0870 600 2482 http://www.bitc.org.uk
DIRTY DOZEN
The Co-operative Insurance Society revealed in December a “dozen dirty tricks” that companies use in order to increase directors’ pay. The CIS, which regularly campaigns against excess pay, identified 12 areas of bad practice designed to give the illusion that companies are sticking to the rules on pay levels made by institutional investors. Examples of these tricks include “tidy desk bonuses” where a director receives a bonus for an orderly handover to their successor, a role that should be a normal part of any employee’s duties. A second example, termed “ask and ignore”, occurs when a company says it has consulted major shareholders, while not revealing that they had expressed reservations. Ian Jones, head of responsible Investment as CIS said: “It is the responsibility of shareholders to stop this gravy train which has seen the gap between director’s pay the rest of the UK workforce increase year on year”. Contact Dave Smith, CFS 0161 829 5397 http://www.cfs.co.uk
LUXURY PENSIONS
The Trade Union Congress (TUC) has found that eight out of ten of the UK’s top companies provide directors with pensions that can pay out in full at 60. An analysis of annual reports reveals that in 80% of company schemes, all directors could retire at 60 without their pension being reduced. In addition directors’ pensions are worth, on average, 26 times those of most employees. Following lobbying by leading business leaders urging Prime Minister Tony Blair to take a tougher line on pensions reform, TUC General Secretary Brendan Barber said: “Top bosses can expect to live long retirements on luxury pensions. They should stop lecturing the rest of us on how we should get smaller pensions from a higher retirement age.” Contact Ben Hurley, TUC 020 7467 1248 http://www.tuc.org.uk
Editorial Comment
Pensions are back in the news, big time. Adair Turner’s well-researched effort to generate a national debate encounters immediate political flak over the public spending implications. Attempts to delay the retirement age of public sector workers – one of the few groups not (yet?) having their final salary schemes challenged – get caught up in the long-running Number 10/Number 11 soap opera. Meanwhile British Gas engineers astutely chose the Christmas period to strike over closure of their final salary scheme to new entrants – with their union general secretary, GMB’s Kevin Curran, reminding the public about ‘fat cat’ executive pay and pensions. And as we go to press, Rentokil becomes the first FTSE 100 company to close its final pension scheme, in a move that would freeze benefits of existing members. CSR managers might be forgiven for feeling this is much too big an issue for them, and not one for their CSR reports. But they are not known for shirking fundamental questions, like the future sustainability of the planet, and these reports surely only serve a purpose if they raise and debate ‘difficult’ issues. Indeed we’ve argued before that at the heart of CSR has to be a debate about who gets the money. So our recommendation, as many of our readers return from the New Year break to struggle with drafting this year’s CSR report, is be sure to include a section on pensions. Be sure to include an ‘added value’ chart showing how much is earned by employees, and this time show how much goes on immediate pay and how much as pension contributions. And we’ll offer a prize to the first mainstream report that tackles the thorny issue of differentials between the earnings of senior executives and the bulk of the workforce. Annual reports now have multiple pages on board remuneration – funny that CSR reports don’t mention it once.
Unhappy and unhealthy
A survey of 25,000 employees reveals that unhappy workers are more likely to become ill. The study, carried out by Lancaster University and Manchester business school, indicates that people with low job satisfaction are most likely to encounter emotional burnout, reduced self-esteem, anxiety and depression. Professor Cary Cooper, of Lancaster University Management School said: “Organisations are reducing their permanent workforce and converting to ‘outsourcing’, which is increasing feelings of job insecurity”. Furthermore, he added: “Workers who are satisfied by their jobs are more likely to be healthier as well as happier”. Contact Jenny Murray, Communications Management 01727 733 889 http://www.cm-pr.co.uk
Where there’s smoke, no hires
The World Health Organisation (WHO) has become the largest international employer to ban the hiring of smokers in an effort to promote its public health campaign against tobacco use. Applicants will be asked if they are smokers and if so, if they would continue to smoke if employed by the WHO. The ban will not apply to existing WHO staff but the agency said it was already offering programmes to help staff to stop smoking. Contact WHO 00 41 22 791 2111 http://www.who.int
Taken to the cleaners
Hundreds of cleaners gathered outside the city offices of the Royal Bank of Scotland and Deutsche Bank in a protest calling for the two firms to pay them a “living wage.” The picketers alleged that RBS had refused to meet with them and union representatives. Deutsche Bank came under fire for allegedly paying cleaning workers only £5.25 an hour, with no sick pay or pensions. The protest outside Deutsche Bank was curtailed after the company agreed to meet union representatives as part of an annual review. Cleaners at the bank are demanding £6.70 an hour, with sick pay and pensions, the amount London Mayor Ken Livingston’s office estimates as the minimum people can live on in London. The discontent is not confined to the private sector. Cleaners who work at the Houses of Parliament have also formed similar protests. Contact Claire Ainsley, Transport and General Workers Union 020 7611 2549 http://www.tgwu.org.uk
Work proper hours
The Trade Union Congress (TUC) is hosting Work your proper hours day on February 24 2006. On this day the TUC is encouraging people who do unpaid overtime, to take a proper lunch and arrive and leave work on time. The TUC wants to remind Britain’s employers just how much they depend on the goodwill and voluntary extra work of their staff. In addition, the leisure, arts and hospitality industries are being urged to make the most of people’s spare time on Work your proper hours day by offering special lunchtime and evening promotions. TUC Head of Campaigns Nigel Stanley said: “‘Work your proper hours day’ is a light hearted way to raise the problem of long hours working in the UK. This year we will be providing practical advice on how employers and employees can work smarter to cut their hours and improve the quality of their work.” Contact Ben Hurley, TUC 020 7467 1248 http://www.workyourproperhoursday.com
Asda has no right
Wal-Mart-owned Asda has been accused of an assault on UK working conditions. Campaign organisation War on Want obtained leaked documents that allegedly reveal a strategy by Asda to remove sick pay for the first three days of absence; to remove the right of staff to take industrial disputes to the arbitration service Acas; to implement the use of “single man loading” for jobs that involve lifting; and to encourage supervisors to “take the credence out of breaks” by ending rest times early thereby “leading by example”. These revelations were published alongside the launch of War on Want’s report Asda Wal-Mart: The Alternative Report, which claims that the company keeps costs low by demanding reduced prices from suppliers in developing countries and forcing harsh regimes on staff. Asda denied that the leaked memo was part of company policy. “It was part of a brainstorming session among three people from one depot,” a company spokesman said. Asda also said it has an “open door” policy on union membership and is not opposed to employee involvement. Contact Asda 0500 100 055 http://www.asda.co.uk
BP’s safety culture lacking
BP has been criticised by a US federal agency for having an ineffective global safety culture. Following the explosion at the Texas City refinery in March 2005, the CSB, an independent federal agency charged with investigating industrial chemical accidents, has called for BP to implement changes, where needed, in all its facilities worldwide. BP accepted responsibility for the explosion in Texas and recently issued its final incident investigation report, where it pledged to implement a modernisation programme and spend $1bn on improving and maintaining the site over the next five years. BP is now co-operating with the CSB and has agreed to appoint a team of outsiders to review safety at its five other US facilities, including its operations in Alaska, where workers have been complaining about a poor safety culture for years. The CSB is also requesting an update from BP on its implementation of the report’s recommendations. Contact Ronnie Chappell, BP America 00 1 202 457 6592 http://www.bp.com; Daniel Horowitz, CSB 00 1 202 261 7613
COMMENTS