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| Theresa May should stick to her guns over pay ratios Theresa May should stick to her guns over pay ratios | |
| (about 4 hours later) | |
| Executive pay reforms do not come much more modest than the idea of requiring public companies to say how much the chief executive is paid relative to the firm’s median earner. Nothing would have to happen as a consequence. Shareholders would not be asked formally if the ratio is too high or too low. The boss’s pay would not have to be capped at a fixed multiple. Instead, the hope is that boards, occasionally, might be embarrassed into exercising a little discipline. | Executive pay reforms do not come much more modest than the idea of requiring public companies to say how much the chief executive is paid relative to the firm’s median earner. Nothing would have to happen as a consequence. Shareholders would not be asked formally if the ratio is too high or too low. The boss’s pay would not have to be capped at a fixed multiple. Instead, the hope is that boards, occasionally, might be embarrassed into exercising a little discipline. |
| Yet even this gentle proposal, likely to be included in the government’s green paper on corporate governance on Tuesday, is running into resistance. Pay ratios are too crude and could mislead, runs one argument, because an investment bank, where lots of people tend to earn megabucks, could seem to be a “fairer” employer than a supermarket chain employing tens of thousands of shelf-stackers and checkout assistants. Worse, pay ratios could prove inflationary if bosses demand a higher place in a theoretical league table, runs another objection. | Yet even this gentle proposal, likely to be included in the government’s green paper on corporate governance on Tuesday, is running into resistance. Pay ratios are too crude and could mislead, runs one argument, because an investment bank, where lots of people tend to earn megabucks, could seem to be a “fairer” employer than a supermarket chain employing tens of thousands of shelf-stackers and checkout assistants. Worse, pay ratios could prove inflationary if bosses demand a higher place in a theoretical league table, runs another objection. |
| Neither argument is persuasive. The “too crude” theory is too lofty. Outsiders are quite able to understand that a pay ratio is merely one measure among many and that investment banks and supermarkets have different pay structures. Where ratios could be revealing is in charting a company’s pay gap over time. | Neither argument is persuasive. The “too crude” theory is too lofty. Outsiders are quite able to understand that a pay ratio is merely one measure among many and that investment banks and supermarkets have different pay structures. Where ratios could be revealing is in charting a company’s pay gap over time. |
| As for the inflationary impact, that depends on the pay-setters. If Theresa May wants to change the make-up of remuneration committees or introduce an advisory panel of “stakeholders”, it’s up to those newcomers to resist any over-the-top pay demands by the executives. One suspects the corporate hostility to seeing pay ratios in the public domain is very simple: boards wish everybody would shut up about executive pay. It’s a bit late for that. | As for the inflationary impact, that depends on the pay-setters. If Theresa May wants to change the make-up of remuneration committees or introduce an advisory panel of “stakeholders”, it’s up to those newcomers to resist any over-the-top pay demands by the executives. One suspects the corporate hostility to seeing pay ratios in the public domain is very simple: boards wish everybody would shut up about executive pay. It’s a bit late for that. |
| The prime minister should stick to her guns. Nobody would pretend that pay ratios are a cure-all but even the US, where the inflation in boardroom pay is truly extreme, is due to introduce mandatory disclosure next year. If the US is doing it, the reform really isn’t terribly radical. The fuss will die down as soon as the PM says yes. | The prime minister should stick to her guns. Nobody would pretend that pay ratios are a cure-all but even the US, where the inflation in boardroom pay is truly extreme, is due to introduce mandatory disclosure next year. If the US is doing it, the reform really isn’t terribly radical. The fuss will die down as soon as the PM says yes. |
| Profits fall at Aberdeen show need for new approach | Profits fall at Aberdeen show need for new approach |
| It was only a few years ago that Aberdeen Asset Management was trying to slow inflows into some of its emerging market funds; the money was arriving faster than it could usefully invest it. The game is very different these days. Net outflows were £32.8bn in the last financial year, roughly the same as the previous 12 months. The election of Donald Trump, threatening trade wars and protectionism, is unlikely to improve the investment appeal of emerging markets, where the Aberdeen name is strongest. | It was only a few years ago that Aberdeen Asset Management was trying to slow inflows into some of its emerging market funds; the money was arriving faster than it could usefully invest it. The game is very different these days. Net outflows were £32.8bn in the last financial year, roughly the same as the previous 12 months. The election of Donald Trump, threatening trade wars and protectionism, is unlikely to improve the investment appeal of emerging markets, where the Aberdeen name is strongest. |
| The fund manager is probably right that Trump, Brexit and European elections “will contribute to ongoing volatility in global markets in the short term” and that it is difficult to make longer-term judgments. It is hardly going out a limb in making that assessment. But the greater problems are more direct and affect most active fund managers. New chairman Simon Troughton summarised them as “fee pressure, increased investment in technology and regulatory capital requirements”. Of those, the pressure from low-cost index funds is probably the most severe and is the least likely to reverse. | The fund manager is probably right that Trump, Brexit and European elections “will contribute to ongoing volatility in global markets in the short term” and that it is difficult to make longer-term judgments. It is hardly going out a limb in making that assessment. But the greater problems are more direct and affect most active fund managers. New chairman Simon Troughton summarised them as “fee pressure, increased investment in technology and regulatory capital requirements”. Of those, the pressure from low-cost index funds is probably the most severe and is the least likely to reverse. |
| Henderson Global Investors has found a plausible escape route by merging with Janus Capital of the US. Aberdeen chief executive Martin Gilbert called that deal “clever,” by which we can take him to mean he would love his own version. But the group has been open to a big deal in the US, home of half the world’s invested assets, for ages and it hasn’t happened yet. | Henderson Global Investors has found a plausible escape route by merging with Janus Capital of the US. Aberdeen chief executive Martin Gilbert called that deal “clever,” by which we can take him to mean he would love his own version. But the group has been open to a big deal in the US, home of half the world’s invested assets, for ages and it hasn’t happened yet. |
| In its absence, Aberdeen must keep attacking costs and hunt for smaller rivals to buy and restructure. It is a perfectly sensible strategy and Aberdeen will have no regrets over its purchase of Scottish Widows Investment Partnership a couple of years ago. But the approach has its limits. After Aberdeen’s 28% fall in underlying pre-tax profits to £353m, the same-again dividend was barely covered by earnings and its £250m cost will swallow most of the year’s cashflow. That can’t go on indefinitely. Unless something turns up in the next year, a dividend cut looks inevitable. | In its absence, Aberdeen must keep attacking costs and hunt for smaller rivals to buy and restructure. It is a perfectly sensible strategy and Aberdeen will have no regrets over its purchase of Scottish Widows Investment Partnership a couple of years ago. But the approach has its limits. After Aberdeen’s 28% fall in underlying pre-tax profits to £353m, the same-again dividend was barely covered by earnings and its £250m cost will swallow most of the year’s cashflow. That can’t go on indefinitely. Unless something turns up in the next year, a dividend cut looks inevitable. |
| Sports Direct advice may come back to haunt Grant Thornton | Sports Direct advice may come back to haunt Grant Thornton |
| In a ranking of Sports Direct’s governance misdemeanours, possible failure to tell shareholders about a deal with founder Mike Ashley’s brother would not be top of the list. But, note, it is not Sports Direct that is being investigated by the Financial Reporting Council. It is Grant Thornton, the sportswear chain’s auditor, that is under the microscope. | In a ranking of Sports Direct’s governance misdemeanours, possible failure to tell shareholders about a deal with founder Mike Ashley’s brother would not be top of the list. But, note, it is not Sports Direct that is being investigated by the Financial Reporting Council. It is Grant Thornton, the sportswear chain’s auditor, that is under the microscope. |
| The accounting rules in this area seem clear enough. A related party includes “close family members of key management” and transactions should be disclosed. It will thus be enlightening to hear Grant Thornton’s explanation of why it thought it was OK for Sports Direct to be silent about its outsourcing of some of its international deliveries to a company owned by John Ashley. | The accounting rules in this area seem clear enough. A related party includes “close family members of key management” and transactions should be disclosed. It will thus be enlightening to hear Grant Thornton’s explanation of why it thought it was OK for Sports Direct to be silent about its outsourcing of some of its international deliveries to a company owned by John Ashley. |
| The FRC’s judgment is keenly awaited. For Grant Thornton, the reputational stakes are high. It was one of the advisers that was heavily criticised by MPs this year for its contribution to the BHS debacle. To slip up on Sports Direct as well would be a notable double. | The FRC’s judgment is keenly awaited. For Grant Thornton, the reputational stakes are high. It was one of the advisers that was heavily criticised by MPs this year for its contribution to the BHS debacle. To slip up on Sports Direct as well would be a notable double. |