Who said this week that “banking has been given a huge wake-up call and we are determined to play our part in restoring its reputation and thereby regaining society’s trust”?
Was it A) the City regulator, B) George Osborne, or C) the chairman of one of the big banks?
The answer, of course, is C. HSBC’s chairman, Douglas Flint, made the comment while revealing a rise in the number of people at the bank pocketing £1 million-plus bonuses.
After a year in which the bank was fined a record £1.2 billion for money laundering, set another several million aside to cover PPI mis-selling and delivered reduced profits, it has given more than 200 people £1m bonuses and paid its chief executive £7.4m.
If you’re going to claim that you recognise how badly the industry’s reputation has been tarnished, your part in restoring will be undermined if you keep rewarding failure. Scotsman Flint is clearly on the same wavelength as the Chancellor, who stands alone in Europe in his opposition to the proposed bonus cap.
So what happened to last year’s backlash against excess remuneration, dubbed the “shareholder spring”? During the 2012 results season Citigroup, UBS, Barclays and Aviva were among the firms to experience rare dissent when the time came for a vote on their pay awards. Big shareholders such as Legal & General, Standard Life and Invesco all refused to support pay plans at various firms.
Perhaps the shareholder spring was heralded prematurely. Indeed, a KPMG report found that shareholder opposition to pay proposals was actually down last year, compared with 2011. It predicted that 2013 would bring more concerted opposition to executive pay, but the early signs are less than promising.
If you find that frustrating, remember that the humble pension investor does have a say. If you’re a member of a pension fund it’s your money that the big institutional shareholders are investing.
The National Association Of Pension Funds (NAPF), is making the right noises, setting out remuneration policy guidelines that include a cap on executive pay hikes. Yet public anger at excessive boardroom pay is a long way from being effectively harnessed, despite the billions of pounds of pension savers’ money invested by institutional shareholders.
Groups such as Fairpensions, a responsible investment charity, are trying to enable the voice of the consumer to be heard. Last year it launched a “your say on pay” email tool (www.fairpensions.org.uk/highpay) giving people the make their views on remuneration known to their pension fund or individual savings account provider.
There’s also the option of taking an active approach to investing, by sticking to pension funds with ethical and/or socially responsible criteria. A growing number of funds managers publish their voting records.
It’s not much, but encouragement can be taken from the increasingly vocal stance of the NAPF, which represents 1,300 pension funds worth some £900bn. The trade body – which held its annual investment conference in Edinburgh this week – warned FTSE 350 firms that its members would “push back on executives who compare themselves with others to try to justify pay rises”.
In recent years it has been too timid when it comes to bonuses and reflecting the concerns of individual pension investors, but it has the clout to make a real difference to the bonus culture in the UK Plc.
Several hundreds of thousand with-profits policyholders will have taken a particular interest in Standard Life’s results this week. Shareholders in the Edinburgh-based group are getting a dividend windfall after it posted better-than-expected profits, with a special dividend being paid on top of the regular payout.
Many of Standard Life’s 1.4 million with-profits investors may feel somewhat aggrieved. Because while its with-profits fund grew 8 per cent last year, around 600,000 policyholders had their bonuses slashed again, while almost all of the insurer’s with-profits endowments policyholders face shortfalls.
With-profits payouts have been declining for several years and Standard Life policyholders are far from alone in being perplexed at seeing bonuses cut regardless of underlying fund performance.
The whole model of with-profits is based on returns being held back in the good years to support payouts in the fallow periods. It has never been transparent, but while policyholders were reaping generous rewards – and indeed, some still are – it didn’t seem to matter.
Transparency is the name of the game these days, however, from adviser charging to complaints data. Rightly or wrongly, the increased dividends going to shareholders will have left many Standard Life with-profits investors feeling a little cheated.