Duncan Brown asks if the bank’s new ‘clean image’ on reward marks a turning point in the senior pay debate
Investors in TSB, the new challenger bank which is being spun out from Lloyds, are much richer this morning after its shares soared on its stock market debut last Friday. It’s been reported that the share offer could have been sold 10 times over. Was it the attractive loan book and balance sheet, or the moderate offer price, or perhaps the bank’s new ‘cleaner image’ that encouraged buyers? “TSB promises modest bonuses” and “a John Lewis approach” City AM declared, with all-staff bonuses of up to 15 per cent based on customer service performance.
But oh dear, as the tabloid press gleefully pointed out, the bank’s chief executive Paul Pester will be surviving on a package of up to £1.68 million. Plus ca change, c’est la meme chose…
In fact, the TSB approach is closer to John Lewis than you might think. The retailer’s chief executive Charlie Mayfield reportedly earned £1.52 million last year, which was 60 times an employee partners’ average salary. Pester’s package at TSB will be no more than 65 times that of the staff who serve us in the bank’s branches, and his bonus will be capped at 100 per cent of pay, half the level of some of his rivals.
The debate over high levels of executive pay shows no signs of abating, despite the government’s reforms last October introducing new disclosure regulations and a binding shareholder vote on the remuneration policy and annual report.
Marc Bolland’s pay at M&S fell by more than half a million to £1.58 million following a disappointing set of annual results, and a study by the High Pay Centre found that over half of a sample of FTSE 100 companies have also lowered CEO pay this year.
Employers who pay more genuine attention to their overall reward strategy and how executive pay relates to general employee rewards in the manner of TSB would certainly benefit. And having HR more closely involved with executive reward policy and how it is reported, rather than just the lawyers, would also bring advantages.
However, the new UK legislation requiring companies to compare pay increases for their CEO with that of their workforce seems to have hit a snag. It would seem some firms have not adhered to the spirit of the requirement. Aggreko and TUI Travel, for example, have selected groups of under 100 employees for their comparisons.
And looking at senior reward more broadly, the risk is that if employers don’t act to curb perceived excess the politicians will do it for them. Thomas Piketty, renowned economist and author of the controversial book Capital in the Twenty First Century, advocates much higher top tax rates. He also recommends fixed salary ratios, similar to those attempted, but voted down, in Switzerland. Under such proposals executives paid more than a certain ratio to that of their workforce would face higher rates of corporation tax.
But with the average FTSE 100 CEO still earning more than £4 million, and their US equivalents topping an average $10 million for the first time last year, both up by 5 per cent on the prior year, its perhaps not surprising the furore continues.
AA Gill amusingly wondered in a recent Vanity Fair article on the ‘perfection anxiety’ that CEOs must suffer from when “you already have half a dozen homes and yachts floating on every ocean”.