ALEX BRUMMER: Greed is making a comeback

ALEX BRUMMER: Overcooked, insensitive boardroom rewards threaten to turn the international tide in favor of a wealth tax

  • The pandemic should have led to a kinder, softer and fairer financial world
  • This year started with Larry Fink, CEO of Blackrock, a £6.6 trillion investor, praising the virtues of better governance
  • The ‘greed is good’ culture is back – chief executives and other directors are taking advantage of a flawed system

The pandemic should have resulted in a kinder, gentler and fairer financial world. This year started with Larry Fink, CEO of Blackrock, a £6.6 trillion investor, praising the virtues of better governance. Instead, the “greed is good” culture is back.

Executives who work for publicly traded companies may feel deeply affected by the instant billionaire standards created by IPOs, high fees at investment bankers, and the returns earned by the private equity barons. But that shouldn’t be an excuse for taking instead of giving, and the excessive payouts being paid out.

The blame for fat-cat rewards often lies with slack pay commissions and the sociable relationship with pay consultants from Big Four accounting firms.

‘Greed is good’: fictional crooked financier Gordon Gekko’s (played by Michael Douglas, pictured) motto in the movie Wall Street

However, it is difficult to escape the conclusion that chief executives and other directors benefit from a flawed system.

Phil ‘Miami’ Bentley at Mitie is a prime example of this. He has been remarkably successful since failing to make the top job at Centrica. When he sold Florida’s Cable & Wireless to John Malone’s Liberty Global empire in 2015, his shares were estimated to be worth £11.4 million. At outsourcing company Mitie, Bentley works with colleagues at the lower end of the pay bracket. The Mitie Army has done a great job during Covid keeping Mail’s staff healthy with an excellent job cleaning and sanitizing our offices. If colleagues keep an eye on the boss, who is heading for a £5.7m payout, they would have every right to be dissatisfied.

Investment advisory groups are taking a tough stance on Bentley’s compensation, and the remuneration report could receive a major vote against it at next week’s AGM.

Bentley’s long-term compensation plan, which offers 200 percent of base salary and year-to-year variable compensation of 221 percent of salary, is unacceptable. The chief executive is paid 78 times the average of the rest of the workforce, against the 20:1 recommended in executive circles. What may be good among Miami yacht keepers is indecent in Southwark. Also troubling is the behavior of Archie Norman and Carolyn McCall, two executives who have earned respect in their lead roles as chairman of Marks & Spencer and chief executive of ITV respectively.

As independent directors at private equity Bridgepoint, which just launched, investors had a right to expect clean hands. Instead, Norman showed poor judgment by accepting an entry fee of £1.75 million and a salary of £200,000.

Norman’s lump sum, invested in after-tax Bridgepoint stock, has already appreciated because broker JPMorgan Cazenove misjudged the demand for the stock.

The £500,000 that McCall has accepted from Bridgepoint jeopardizes her independence and will hardly have any more low-paid producers and camera operators dancing in the aisles of ITV.

Norman and McCall are heavyweights in the public sphere, but have acted like teenage footballers signing their first Premier League contract.

Case number three is the most extreme. Jamie Dimon, chief executive of JPMorgan (JPM), is the world’s top banker, despite previous spats with authorities over the ‘London Whale’ trade scandal.

His annual salary at JPMorgan last year stood at over £23 million, making him the second highest paid bank manager in the US. Through various stock plans, he is said to have built up a $1 billion (£730 million) equity stake in JPM.

Still, the board handed out new options worth $50 million (£36.5 million) this week, which will vest in five years. As a CEO who already earns 395 times the average salary at the bank, and is already enormously wealthy, this is a terrible sight when the world economy is being strangled by the Delta variant.

Overcooked, insensitive boardroom rewards threaten to turn the international tide in favor of a wealth tax.

Low flying

The naked chutzpah of the American private equity firm Advent knows no bounds.

After buying Cobham in 2020 and stripping the pioneering aerospace company of all British manufacturing, it is using the name of the Poole-based company to buy Ultra Electronics for £2.6 billion.

The target company supplies key components for both the Typhoon Eurofighter and BAE’s advanced F35 aircraft.

There are vague promises about preserving national security. It would be disheartening if Advent, using his property in Cobham, found a way to avoid scrutiny under the new UK National Security and Investment Act.