James Moore: Bankers and bosses in line for bonuses – whether they deserve them or not
Plus: Goldman Sachs’ sneaky move to beat the taxman, Raise your glasses in a toast to Greene King
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Monday 14 January 2013
Bankers’ bonuses are again making the headlines, but they won’t be alone in expecting riches. Many of Britain’s top executives are going to get paid handsomely this year. The stock market has been rising, and that’s good news for total shareholder return, or TSR, which is made up of dividends plus share-price growth.
TSR is one of the numbers to which bonus payments are linked. Thanks to the rising share prices it is a number which is looking very good for an awful lot of companies.
Already there are reports that Antonio Horta-Osorio is going to receive a huge bonus from the state-backed Lloyds Banking Group. Its shares have soared, despite the fact that it is still losing money. Investors worked out that those shares were trading at a huge discount to the underlying value of the bank’s businesses. So they piled in, and the shares duly rose.
How much this had to do with Mr Horta-Osorio is debatable, but he is poised to benefit handsomely from it all the same. Some 30 per cent of his bonus is linked to TSR. And with his total bonus worth up to five times his £1m annual salary, the Horta-Osorio household will be a happy one this year.
There may be more of this to come, too. Jim O’Neill, the Goldman Sachs investment guru, thinks that an awful lot of money is going to shift from bonds into equities. He may well be on to something. The yield on UK government bonds remains pitiful – just over 2 per cent. Vodafone shares yield three times that.
Eventually big funds will work out that even though the world’s economy remains a work in progress, sitting on your hands while making 2 per cent a year from supposedly “safe” bonds when you can get three times that from a relatively safe blue-chip company doesn’t make much sense.
So share prices will continue to rise, and executive compensation will rise with them, despite the fact that the phenomenon is largely unrelated to the quality of their stewardship of the companies they are running.
Ah but, I hear you cry, this is the era of shareholder activism. Don’t you remember the “shareholder spring” when remuneration committee chairmen and women across the City got hauled over the coals for lavishing executives with piles of cash they didn’t deserve?
Well, another consequence of those rising share prices is that a lot of fund managers will be feeling happy. The value of their funds will have risen and they’ll be prodding their marketing departments to produce glossy brochures telling their clients just what clever chaps they are. They’ll also be counting on bonuses of their own.
The people who oversee the votes at company AGMs for them may well be told to keep it quiet this year if they did much in the way of voting last time. Traditional fund managers such as Fidelity, and M&G actually only tabled a relatively small number of dissenting votes.
There’ll be even less this year. The market is rising, and everyone loves a rising market because everyone gets paid. Whether they deserve it or not.
Goldman Sachs’ sneaky move to beat the taxman
Trust Goldman Sachs. With top people set to get a 5p in the pound cut in taxes, it is considering delaying bonus payments for a few weeks until after the reduction takes effect in April. This will, however, be restricted to share-based payments which were deferred from prior years (and, obviously, that makes it absolutely fine).
At a time when the most vulnerable groups in society are feeling the effects of the withdrawal of even the limited support they get now, a Goldman banker in London with £1m in deferred shares coming might get an extra £50,000 to spend on fine wines, fine art, or whatever other folly takes their fancy.
The big British banks, buffeted by scandal and bad PR, won’t be following suit, but many US, and perhaps European banks are considering similar moves. And while Britain’s banks might not be playing such games, British companies certainly aren’t averse from indulging.
There were plenty that brought executives’ bonuses forward before Labour introduced the 50p rate. There are plenty that will happily defer bonuses so their executives can capitalise on the new 45p rate.
There’s nothing illegal about this. But it is sneaky. And it is worth remembering that when the CBI or some other business group moans about how Britain doesn’t love business and doesn’t take account of the contribution it makes to society.
Those same British businesses have contributed to Goldman Sachs being top, or second, in all the usual investment banking league tables despite all the scandals surrounding it.
See, there is honour among … but I won’t go there.
Raise your glasses in a toast to Greene King
Cheers! In the midst of all the hand-wringing among consumer-facing businesses about the squeeze their customers are facing, up pops Greene King with a surprise on the upside.
Despite the talk of pubs closing and complaints about regulation and taxation, it appears that it is still possible to make a success of the pub business. It helps that while Greene King does have a fair amount of debt on its books, it is in much better shape than some of its rivals.
The Government has been rather mean to the sector, it’s true, but many of its wounds have been self-inflicted. Greene King’s numbers appear to show that if you sell good beer and good food, smile at your customers and don’t charge them too much, they’ll still come in.
If this unfashionable practice catches on maybe there’ll be a future for the great British boozer after all.
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