Theresa May has attacked excessive boardroom pay as the “unacceptable face of capitalism”. The prime minister said in the summer that too many firms fell “short of the high standards we expect of them” when they ignored the concerns of their shareholders by awarding pay rises to bosses that far outstrip the company’s performance.
Employers were also guilty of ignoring some of the most basic commitments made to their employees, she said. Understandably, the country expected some tough action to match the rhetoric.
Last week, one of the initiatives bore fruit. The Investment Association, the trade body for the fund management industry, published the names of all the companies listed on the London stock exchange that suffered at least a 20% shareholder rebellion against proposals for executives pay, re-election of directors or other resolution at their shareholder meetings.
The public register included on its list the fashion label Burberry, broadcaster Sky, retailer Sports Direct, estate agent Foxtons and Sir Martin Sorrell’s advertising company WPP.
In the name of greater transparency, May will open a second line of attack in the form of rules obliging the same firms, many of them multinationals, to publish by next June the pay ratio between their chief executive and their average British worker.
Chief executives’ pay has soared in recent years. A study by the Equality Trust earlier this year found that the average FTSE chief executive earns 386 times more than a worker on the “national living wage”. The charity used annual reports from 2015 for all the companies in the FTSE 100 to calculate that their bosses pocket an average of £5.3m a year, compared with £13,662 for someone on the national living wage at the time of £7.20 an hour.
Naming those companies under attack from shareholders is considered by ministers to be a big step in handing workers the power to rein in excessive awards. Greg Clark, the business secretary, billed the changes as a “world-leading package of corporate governance reforms”.
Equality campaigners took a different view. They said businesses would emerge unscathed to award bosses extravagant bonuses much as before, especially after May watered down her plans, leaving out proposals for workers on boards. Rebecca Long-Bailey, Labour’s shadow business secretary, said the government’s proposals were “just more crony capitalism” that failed to impose tough constraints on executive pay.
There is a philosophical point to be made – that businesses should recover a moral dimension – that appears to be have been lost in the last 30 years of grasping executive pay awards. The 18th century economist and moral philosopher Adam Smith grounded his view that business should be left unfettered from government control in a belief that owners of capital would behave ethically. With this in mind, there could be no better way to end excessive pay than by appealing to the better nature of the company’s bosses or the owners of the company’s shares.
For many people, this argument is stretched to incredulity by an insular management class who appear immune to embarrassment. They live in a world where few people seem to question high pay. Pension funds, desperate to fill their ballooning deficits, have a tendency to put bumper dividends payments above issues like executive rewards.
The rules could be tougher, but they do raise a question: would people who have refused to voluntarily restrain top pay awards – that is, the majority of shareholders and directors – comply with new laws? Or would they join the trend to take companies private, away from the prying eyes of the public and the most stringent government rules?
May has made provision for private companies to publish pay data, but this is voluntary. The temptation would be to have a mandatory rule that encompasses all forms of ownership, whether public or private. It is a temptation that ministers should embrace.
Chilly reality awaits retailers after basking in Christmas glow
Creditors usually wait for the Christmas spending spree to end before pulling the plug on struggling retailers and there is no reason to imagine that early 2018 will deviate from the normal pattern. It would be a miracle if Toys R Us, rescued last week, were to be the only company having financial difficulties at this time of year.
After a surprisingly strong end to 2016, retailers have found life a lot tougher in 2017. Firstly, consumer spending has been subject to a nasty squeeze on real incomes, with prices rising faster than wages. The cannier households realised in the months following the EU referendum that the fall in the value of the pound would push up the cost of imports and brought forward purchases of big-ticket items. That helps explain why business was so brisk in the second half of 2016 and has been weak ever since. New car sales have been particularly soft.
Secondly, retailers have seen their profits squeezed by an above-inflation increase in the minimum wage and by higher pension costs. They have sought to pass on higher costs to consumers, but this has not been all that easy when household budgets are under pressure.
All this has come at a time when retailing is going through a profound change. Consumers know that they can save time and money by shopping online, and this has come at the expense of brick-and-mortar stores.
Life will get a bit easier in 2018, but not by all that much. The main effects of the pound’s depreciation after the Brexit vote have now passed through the economy, so the annual inflation rate will come down from its current level of 3.1% over the coming months. Average earnings growth, currently running at an annual 2.3%, could also edge up a bit, boosting spending power. But the impact won’t be dramatic.
The economy has been over-reliant on consumer spending as the engine of growth, so some rebalancing towards investment and production is actually quite healthy. Retailers are unlikely to see it that way, though.
Apple’s admission on batteries drains its users’ goodwill
Apple claimed last week that it had had its customers’ concerns at heart when it admitted what many users already suspected: the tech giant deliberately slows down older phones when their batteries start to struggle.
An Apple spokesperson said: “Our goal is to deliver the best experience for customers, which includes overall performance and prolonging the life of their devices.” But they are no fools at Cupertino and they must have known what would come next: a lawsuit from disgruntled customers.
Apple now has a public relations problem on its hands. Trust is an ever-relevant issue in the tech sector, from issues of privacy to the vulnerability of your online life to hackers.
Apple has added to those concerns unnecessarily. It is unlikely that the battery story will have a material impact on sales, but it will make it harder to win back the public if the company encounters more serious problems in the future.