Category Archives: Executive Pay

Financial Loopholes

STOP PRESS 14/8/14: Both HSBC and Royal Bank of Scotland have announced they will be employing a loophole to circumvent the cap on bankers’ bonuses – since this blog was written it has been confirmed that HSBC is giving £7.1m in ‘fixed payments’ to 15 of its top staff to sidestep the EU-imposed cap on bonuses. Similarly RBS will be paying £3.5m to 10 of its top bankers. Further proof that the Free Market Capitalist view of the ‘trickle down’ of wealth is a nonsense, as those at the top will shamelessly employ every trick they can to accumulate society’s wealth for themselves. http://www.theguardian.com/business/2014/aug/13/hsbc-executive-pay-allowance-bonuses-banks

The advocates of our current version of Capitalism – Free Market Capitalism or ‘neo-Liberalism’ – freely admit that those fortunate enough to reside in the upper echelons of society will accumulate vast amounts of wealth, but claim that this wealth will naturally ‘filter down’ for the benefit of everyone. This is a complete fallacy, with the reality being  that those at the top will use every trick in the book – legal and illegal – to hang on to their wealth and avoid sharing it with anyone else. This is perfectly illustrated by two events this week, where extremely wealthy people resorted to desperate and disgraceful measures to increase their already vast fortunes.

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Bernie Ecclestone: not content with his £2.8bn fortune, does his best to avoid paying tax as well. Picture © Ryan Bayona

First, Bernie Ecclestone, the Head of Formula 1 racing, who is reputedly worth some £2.8bn, has been involved in a long-running dispute with the Inland Revenue over unpaid tax. Mr Ecclestone apparently set up a series of family trusts, which he then put in his wife’s name, before transferring them to the Tax Haven of Liechtenstein. This got him out of a tax bill estimated to be about £1.2bn*. However, after a 9-year investigation the Inland Revenue eventually agreed to drop proceedings, and Bernie Ecclestone has instead coughed up a mere £10m in underpayment: as much as he makes every  6 weeks in interest on the money! It may well be that by clever manipulation of legal loopholes he has stayed within the  law, but it nevertheless shows the extreme lengths the very rich will go to, to avoid sharing their wealth with the rest of society, while at the same time ordinary people have to struggle on under the cosh of Austerity.  What on earth does he need £2.8bn for anyway, other than to show it off as an obscene status symbol? If he’d paid the £1.2bn tax and was now worth ‘only’ £1.6bn, in what way would that have adversely affected his lifestyle? One wonders whether he considers how the tax he’s avoided could have gone to improving the lives of so many ordinary people, or is his selfishness so complete he really doesn’t give a damn?

The second story concerns Taxpayer-owned Royal Bank of Scotland, where it was announced this week that  the government will not allow the bank to pay bonuses of 200% of annual salary to their staff, but must instead stick to the 100% limit agreed by the EU. So chief exec Ross McEwan can ‘only’ be given a maximum bonus of £1m on top of his £1m annual salary. So what have RBS done? Announced that Ross McEwan will now also be paid a £1m annual ‘allowance’ on top of his salary. In other words he will still get the extra £2m/year that a 200% bonus would have delivered*. These people just take the p*ss – not only have they clearly learnt absolutely nothing from the financial crisis, but they continue to blatantly milk the system for all it’s worth right under our very noses, by side-stepping the rules without even trying to hide what they’re doing.

This is Free Market Capitalism at its very worst – allowing those with the wealth to make the rules, which enables them to take as much money for themselves as they like, while the rest of us all have to pay for their excess. What we badly need is a system of governance where those in power are truly independent of those with the cash, and the rules and laws are made for the benefit of all society, not just the wealthy elite at the very top. Until we get that, the vast injustices that we witness on an almost daily basis will continue unchecked.

*Refs: Bernie Ecclestone: http://www.theguardian.com/sport/2014/apr/28/bernie-ecclestone-tax-bill-panorama-bbc Ross McEwan: http://www.theguardian.com/business/2014/apr/25/royal-bank-of-scotland-bonus-plan-blocked-by-government

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Maria Miller – One Society, Two Worlds

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Maria Miller: The latest in a long line of MP’s milking the system for all it’s worth. Picture © Policy Exchange

The Maria Miller controversy has rightly caused public indignation at what is seen as corruption and arrogance by the ruling classes. However although she and her party have behaved badly, we should not lose sight of the fact that this is just the tip of a very nasty iceberg. In many ways MP’s pay and expenses are the lightning rod of a fundamentally unjust system, which gives many people fabulous wealth, while leaving many more people struggling in poverty.

What the MP’s pay issue highlights is the vast disconnect between what most people perceive to be ‘fair-pay’, and what those in the upper echelons of society actually earn. People look at Parliamentary pay (currently £66,000 for an MP, rising to £134,000 for cabinet ministers and £142,000 for the Prime Minister), and consider it’s more than enough for anyone, and therefore get rightly aggrieved when MP’s try and leech yet more money through the expenses system. MP’s on the other hand look at what top businessmen generally earn (chief exec’s of FTSE-100 companies currently average £5.1m/year) and conclude – correctly – that they’re underpaid compared to what they could get in the private sector. So the public think they’re overpaid, while they think they’re underpaid. This huge disconnect is a result of the philosophy that the best way to run a society is to let ‘the market’ decide everything, including everyone’s salary. Inevitably what this actually means is that those at the top, who effectively control ‘the market’, reward themselves handsomely, while everyone else is forced to accept just the bare minimum.

Also in these circumstances it’s no wonder those who work in public services adore the concept of privatisation. The top 5 earners at British Gas took home average pay of more than £3m each last year.*  If British Gas was still publicly owned such outrageous salaries would come under intense public scrutiny and criticism, but as a private company they dismiss such criticism claiming they get the ‘market rate’, justify British Gas’s vast profit on the  basis that a 5% margin is ‘reasonable’, and basically tell the struggling populace to just shut up and stop complaining.

Until we can get away from this belief in ‘the market’, those in positions of power will continue to run rings round the rest of us, and we will continue to live in a very unfair and unjust world.

For more on the huge issues of pay inequality click here.

* http://www.mirror.co.uk/money/city-news/centrica-bonuses-fury-owners-british-1788935

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Fat Cats Return

As the government claims the economy is heading into a recovery, it seems the fat cats at the top of the heap see this as an opportunity to increase their pay and once again lap-up as much wealth as they can for themselves, regardless of how poor their performance may have been, and regardless of what everyone else might be forced to go through in the name of Austerity.

Firstly Barclays*, which has been rocked by several recent scandals including Libor fixing, Foreign Currency fixing, and customer mis-selling, is nevertheless paying out £2.4bn in bonuses to its top staff this year, which means that 481 of its staff now earn over £1m/year each, including 8 on more than £5m/year. It is also introducing special ‘allowances’ of up to £1m for 1000 of its senior staff, in order to circumvent the EU cap on bonuses. All this despite their profits falling 32% last year.

Meanwhile over at Lloyds Bank*, which is 33% owned by the taxpayer, they are similarly introducing special ‘allowances’ to avoid the bonus cap, which means 27 of their top staff now take home over £820,000 each, including chief-exec Antonio Horta-Osorio who is getting paid no less than £4.9m this year.

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The Co-op: Ethical investors have been left bitterly disappointed by recent events at the bank.
Picture © Mtaylor848

Even more outrageously the Co-op*, long beloved by many customers as an ethical alternative to a corrupt banking system, also now seems to be succumbing to greed, and is introducing massive pay increases for its top staff, despite recent scandals and the fact the bank is currently in dire financial straits. Even though they lost around £2bn last year and are being forced to lay-off 5,000 staff, their new chief-exec, Euan Sutherland, is set to receive a £3.66m pay package this year, which is a massive increase on last year when his predecessor, Peter Marks, was paid a ‘mere’ £1.3m. Seven other top execs are to be paid over £½m/year, more than double what they were paid last year.

And over at British Petroleum*, which is still recovering from the massive Gulf of Mexico oil spill, Chief Exec Bob Dudley saw his pay triple last year to £5.2m, along with similarly huge increases for several other top execs.

As is so familiar now, these corporations all justify their massive pay increases with arguments about ‘market rates’ and ‘paying for talent’, never mind that ‘market rates’ never seem to apply to the rest of society where ordinary people are forced to suffer Austerity, and never mind that these people get their huge pay packets whether they’re talented or not. It’s all a big con, with fat cats lapping-up the wealth and the rest of society footing the bill. Free-market theories can only ever create an increasingly unequal and unfair society, and will continue doing so until people decide they’ve finally had enough, and get rid of our corrupt economic and political system. For more on the fundamental flaws of ‘free market’ economics click here.

*References: http://www.dailymail.co.uk/news/article-2574024/Lloyds-boss-Antonio-Horta-Osorio-gets-900-000-shares-allowance-year-salary-potential-bonus-bank-looks-sidestep-new-European-rules-capping-payouts.html and http://www.dailymail.co.uk/news/article-2576662/Co-Operative-Group-pay-chief-executive-3-5m-pay-bonuses-year-job-despite-1-5bn-hole-banks-finances.html and http://www.theguardian.com/business/2014/mar/06/bob-dudley-chief-executive-bp-triples-pay

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Bankers’ Bonuses Roll On

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HSBC – The big pay-outs continue. Picture © Danesman1

This week we’ve seen two major banks announce their results, and their response to recent pressure to limit their bonuses has been all-too predictable. Firstly HSBC – following on from recent EU legislation limiting bankers’ bonuses to an amount no greater than their basic salary – have now announced they will be paying their top staff an additional ‘fixed pay allowance’, in order to circumvent the rule. So this year Chief Exec  Stuart Gulliver will be giving himself an extra £1.7m on top of his £1.2m salary, to make up for any cuts to his bonus (this allowance will not be performance related), while a further 1,000 top employees will be given similar payouts. This follows on from last year’s figures which show that top employees at the bank were paid on average £900,000 each per year, with Mr Gulliver himself receiving a total package of £8.03m.*

And now taxpayer-owned Royal Bank of Scotland, despite astronomical losses last year of £8.2bn, has announced it will nonetheless still be paying out £576m in bonuses to its top staff. This despite requests from many senior government figures to show restraint.

In both the above cases the banks justified their action with the argument that in a market economy they have to pay ‘market rates’ in order to get the best people. Never mind that ‘market rates’ don’t seem to apply to the rest of the workforce who are still being asked to undergo Austerity, and no care at all for the 13 million people in this country living in poverty, half a million of whom were forced to visit foodbanks last year. Any economic system which can create such vast inequalities between rich and poor is a broken system, which any decent person would try to change, not justify or defend.

For more on how our free-market system inevitably leads to constantly increasing executive pay, and an ever-widening gulf between rich and poor, click here.

* http://www.standard.co.uk/news/uk/city-bonuses-row-hsbc-gave-top-staff-900000-each-in-2013-9149258.html

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The Barclays Money-go-Round

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Picture © Nadia Isakova

Yesterday Barclays Bank published its results and unashamedly demonstrated that the City bonus culture is back in full swing. Never mind the fact that profits have fallen by 32%, never mind the fact that over 10,000 people are going to be laid off because of commercial problems – no less than £2.4bn (a 10% increase) is still going to be paid out in bonuses to their top bankers. When questioned about this their chief exec, Antony Jenkins, resorted to the old free-market capitalist mantra of ‘market rates’. It’s a shame market rates only ever seem to go up for top earners , while for broader society wages stagnate and living standards go down.

These big corporates really are just money-making machines for their top staff, which the rest of us have to finance.

Many people believe that the owners – the shareholders – are also coining it in, but in reality they are getting fleeced too. The £2.4bn that is being paid in bonuses to staff is almost triple the £859m that is being paid in dividends to shareholders. To put this rip-off culture into even starker contrast, in 2009* (the latest year for which complete figures are available), of the £11.6bn profit made by Barclays, it paid a mere £113m in tax (a rate of just 1%); £734 in dividends to its shareholders (a lot of whom are pension funds); but a thumping £2.5bn in bonuses to its own staff. It’s daylight robbery and we’re all getting mugged. Question is: how much longer can it go on for?

* http://www.theguardian.com/business/2011/feb/18/barclays-bank-113m-corporation-tax

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