Blackfriar: Big rewards at top an irritant as downturn drags on

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BOARDROOM pay has long been a bone of contention, but the longer the downturn drags on, the more it becomes an open sore.

Shareholder advisory group PIRC this week raises some pressing concerns about the pay deals at three of Yorkshire’s biggest and best-known firms.

Combined remuneration at York-based housebuilder Persimmon was “excessive” in 2011, it said, after chief executive Mike Farley earned a £1.9m total pay and bonus deal.

Combined bonus awards at Goole natural chemicals giant Croda are also “excessive”, warns the advisory body.

It also has concerns over contracts at Saltaire-based set-top box maker Pace, where former chief executive Neil Gaydon was handed a $914,000 (£574,000) payoff.

Doorstep lender Provident Financial, which reveals its CEO Peter Crook’s total pay and benefits hit £1.6m in 2011, has felt the wrath of shareholders before over its boardroom pay when in 2009 shareholders rejected its remuneration report.

Blackfriar is interested to hear what PIRC will make of Provident’s latest pay deal.

In choosing the public markets route, companies implicitly accept the scrutiny and criticism which often follows publication of their top employees’ pay and bonuses.

By contrast, private companies do not generally benefit from the fundraising and profile-boosting opportunities afforded to stock market-listed firms – but do get to keep their pay deals from the public eye.

It’s hard to escape the feeling that even amid the deepest downturn for decades, increases in total pay for top company executives continue to outstrip wages for ordinary employees.

Bonuses and incentives often exceed salaries. In Provident’s case, Crook’s salary of £622,000 was eclipsed by a £756,000 cash bonus.

For Persimmon’s Farley, his £659,000 salary was matched by a cash bonus of the same sum.

Blackfriar was interested to note International Personal Finance was rare in comparing its top earner’s pay with the average salary of its workers. In the UK, this was a weighted average of eight, but in Mexico, it leapt to 33.

Blackfriar believes this kind of disclosure must become the norm if the debate about boardroom pay is ever to be satisfied.

Repeated studies have pointed to a growing gulf between the lowest and highest paid. Blackfriar is not calling for a prescriptive ratio – every situation is different.

But more disclosure may prompt more pay restraint – and perhaps even encourage executives to follow the example set by former Yorkshire Building Society CEO Iain Cornish who repeatedly handed back his bonus.

Blackfriar welcomes Business Secretary Vince Cable’s review of corporate governance as a vital step in the right direction.

But it will take a huge culture shift to replace one of the biggest flaws in corporate pay – the principle that simply doing one’s job well warrants a bonus.

THE news that warm, sunny weather boosted sales of clothing, footwear and outdoor leisure goods last month has provided a much-needed boost for the UK’s hard-pressed retailers.

According to the latest research by the British Retail Consortium, UK retail sales rose 3.6 per cent in March, against a 1.9 per cent decline in March 2011.

It appears that the early signs of summer persuaded shoppers to buy clothes and shoes for the new season.

Gardening items and outdoor leisure also saw a lift as people took advantage of the unseasonably warm sunshine.

Howard Archer, chief UK and European economist at IHS Global Insight, said the March BRC survey was better than expected and should settle some of the nerves over consumer spending that had been frayed by the Office for National Statistics reporting that retail sales volumes fell 0.8 per cent month-on-month in February.

While the BRC has indicated that the year-on-year growth rates in retail sales in March were boosted by the good weather and the fact that March 2011 was a particularly poor month for retail sales (partly due to the earlier Easter), the survey suggests that consumers have not gone completely back into their shells.

Despite this Dr Archer believes the BRC survey does not eradicate the suspicion that consumers will be cautious in their spending in the near term at least in the face of still challenging conditions.

On top of this, it is yet to be seen what impact the subsequent return to chillier weather and April showers will have.

One could argue that the wet weather will spur sales of macs, umbrellas and welly boots, but analyst Clive Black at Shore Capital believes that with the “cardies” back on and an inclement Easter against tougher comparatives, April’s data will be soggy.

In the coming months much will rest on the feel-good factor produced by the Queen’s Diamond Jubilee, England’s performance at Euro 2012 and the London Olympics. While the first and third can be relied on to lift our spirits, experience suggests we shouldn’t hold too much hope for Euro 2012.