Ferocious indigestion

In today's column, Polly Toynbee writes:

Yesterday, promoting their latest survey of 87 top executives, the CBI said two-thirds complain about tax. Only two-thirds? Who are the one-third who are happy with their taxes? The CBI claims the UK's "burdensome and expensive" tax system is a major factor for the 20% of firms that shifted some operations abroad and the 30% considering it. Again, what's surprising is that they could drum up only a third of executives willing even to "consider" moving bits of their business abroad.

If you look at the actual CBI research (pdf link here), you'll see that the "20%" should be 22%, and that there is overlap between the 22% and the 30% (see page 6 of the report) -- one of the reasons that there were 'only' 30% willing to consider moving operations overseas is that 9% have already moved operations overseas and are not contemplating further moves.

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Polly also writes that:

These days most shares belong to ordinary citizens via their pension funds, so it's hardly surprising that people are shocked at so much money all but stolen from public companies at the top.

It's good to see that she's starting to qualify some of the outrageous exaggeration -- only last month it was not "all but stolen" but actually "stolen", and not "most" shares but "all".

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She also writes that:

Explosive boardroom pay increases and bonuses distort pay structures, fracturing any sense of proportion or just reward. FTSE CEOs helped themselves to 30% more this year, while their directors took 28% (against an average pay rise of 2.8%). They now earn at least 76 times the average pay of their staff, when in 1980 it was just 10 times.

The 30% figure comes from Watson Wyatt (this will be important later on), though let's just note for now that it is not FTSE CEOs but FTSE-100 CEOs. The 28% figure comes from the Guardian's own research, and refers to last year not this year, but who is going to argue with someone who has a "ferocious appetite for research" and yet can't be bothered to talk to her colleagues? Oh, and the Guardian article referring to the research talks of average earnings increasing at 3.7% a year rather than 2.8%.

Now, she then goes on to say that:

But where is the party to tell them this has to stop? ... [I]n his Today programme interview, [Cameron] said: "I don't think we're going to make the country a happier or better place by capping David Beckham's salary." But David Beckham is not the point. His highly marketable skills are on competitive display: his value matches his goals (and so is steadily falling). But there is no objective measure of the worth of directors and CEOs

Now, if Polly actually did have a ferocious appetite for research, as Andrew Marr claims, she would have looked at last year's Watson Wyatt research (told you it would become important). It revealed that:

chief executives' total remuneration has fallen on average by 7 per cent to £2.1m because the value of their long-term incentives has in many cases been reduced.

Why? Because, according to Watson Wyatt:

Shareholders have understandably been keen to use performance conditions to ensure that the long-term incentives offered to executives are paid out on their actual performance rather than fortunate market conditions. But the performance measures they have imposed have in some cases reduced the real value of the incentives to the executives.

It's almost as if there were a measure of the worth of a CEO -- the performance and arguably health of their company -- and that their pay sometimes falls. Gosh!

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She also writes of some research by Nick Isles:

Asked why they are paid so much, the conventional answer is that they suffer more risk on their precarious perches, or that they work in a global market that sets their pay rates. Isles blew the last reason out of the water in his previous research: the global market is a myth, our CEOs are mostly not only homegrown, but promoted from within their firms, and no global market clamours for their talents.

The Isles report she is referring to is called Life at the top: the labour market for FTSE 250 chief executives (pdf link here). Polly refers to this a lot but doesn't actually like citing it, leaving that to others, those who actually do have a ferocious appetite for research (click here [update: sorry, I mean here] and search for '2orangey4crows' a couple of times to see what I mean). What the Isles research shows is that:

The majority [of FTSE-250 CEOs] – nearly 60% – have been with their company for eight years or more. The vast majority of these individuals have moved up the ranks, at least to some degree. A further 6% have been with their firm for between three and eight years, and the remaining 38% have been with their company for three years or fewer.

All right, so not all are brought in from outside, but a non-trivial proportion are relatively new to the company. Three years or fewer in a company before being CEO is hardly working your way up through the ranks. As for "homegrown", the Isles research says:

the vast majority – 86% – are UK citizens.

This is hardly the same as homegrown (Robert Maxwell, anyone?), but we'll let that slide.

Consider for a moment the idea that because so few CEOs are foreign citizens and that almost 60% of them have been with their firms for over 8 years, it can be concluded that there is no global market effect determining their wages. This is tantamount to saying that because city dealers can't have any effect on property prices in London, because there are so few city dealers who buy property. It just doesn't wash.