From SocGen’s Andrew Lapthorne and quant team: in the first quarter of 2013, buybacks done to offset the dilution from executive stock options maturing reached near a post crisis high and ticked past the amount of buybacks done to reduce the overall share count — you know, those done to benefit the shareholders:
Follow the money.
A central bank buys government debt. Prior holders of said debt are forced to invest elsewhere. Some are drawn to the corporate bond market, where a similar process repeats itself: corporate bond yields fall, offering cheap financing to companies, who issue fresh debt and end up holding at least a portion of QE cash. Read more
That’s Xstrata, down 6 per cent at 910p at pixel. It was sitting at the top of the Footsie “losers” board towards the end of Wednesday’s session, just above would-be merger partner Glencore International, which had itself fallen 4.5 per cent to 350p. (Both prices subsequently rallied as the market closed.) Read more
Nearly 60 per cent of shareholders voted against a 60 per cent increase in Sir Martin Sorrell’s pay for 2011. Here’s his earlier defence in the FT – and here’s WPP’s AGM trading update (including a bit on return of shareholder cash…) Read more
Funny company, GKP.
The latest executive remuneration scheme seems to have been fashioned so as to encourage takeover speculation amongst the hoards of retail investors who follow this Kurdistan oil play. Read more
Trinity Mirror is facing renewed pressure to rein in the pay of its chief executive Sly Bailey from some of the biggest shareholders in the media group, the FT reports. The shareholders will set out their mounting unhappiness over the pay of one of the UK’s highest-profile media executives when Trinity Mirror’s incoming chairman David Grigson holds a series of meetings with key investors. Shareholders believe Ms Bailey’s pay is above her peers and that she must rebase her remuneration to recognise Trinity Mirror was now a much smaller business than when she joined nine years ago. Last year she earned a base salary of £736,000 together with a £660,000 cash bonus and £57,000 in deferred shares linked to the company’s performance in 2006. Read more
Two solid FTSE stocks, covered by a total of more than 50 analysts, fell by 15% in a day during the first couple of weeks of January. It would have been downright spooky for any of Carnival’s crew of followers to have predicted the bizarre sinking of the Costa Concordia, yet it is astonishing that nobody anticipated the news from Tesco. Both companies dominate their industries, both have suffered severe reputational damage, but the longer-term impact on each is likely to be dramatically different.
The loss of a huge new cruise liner is obviously far worse than the admission that profits might not grow for a year. Any loss of life, however small in the context of thousands of passengers successfully rescued, is a tragedy for those concerned. The realisation that the sea is always capable of springing nasty surprises will at least dampen the enthusiasm of holidaymakers to go cruising. Read more
…potential thus exists for the formation of a”vicious cycle” where increases in disparity weaken concern for wage equality or redistribution. This weakened concern affords greater future compensation differentials, a shrinking of the welfare state, and so on that further increase inequality and again shift preferences.
With all the furore around high pay packets and “capitalism in crisis“, it seemed appropriate to look up what some of the latest academic research has to say. The above is taken from a NBER working paper entitled “Income Inequality and Social Preferences for Redistribution and Compensation Differentials” and it’s by associate professor William R Kerr of Harvard Business School. Read more
David Cameron’s pledge to curb executive pay and stop “rewards for failure” is set to face its biggest test, the FT says, as Royal Bank of Scotland prepares to offer a bonus of more than £1m to its chief executive, even though the state-controlled bank’s share price has almost halved in a year. Sir Philip Hampton, chairman of RBS, and the bank’s board are determined to face down political pressure and will press ahead with a bonus payment to Stephen Hester likely to be in the range of £1.3m-£1.5m on top of a salary of £1.2m. Final figures will be settled next month. Meanwhile, the FT reports separately, the investment industry is still pulling together a diplomatic response to Mr Cameron. But privately investors are dismayed by the idea of a binding vote, because as one unnamed insider at an investment body said “They don’t want new powers that mean they will be tarred with more failure [to hold down executive pay].” Read more
A British academic, Ian Tonks of Bath university, suffered a vicious TED attack this week regarding this post — a summary of Tonks’ research into links between bankers’ bonuses and the financial crisis.
Tonks finds that there is (to him) a surprisingly weak link between executive pay and performance across all industries, not just banks. In other words, bankers high pay doesn’t actually appear to be linked to performance. However, he thinks politicians should go ahead and reform executive remuneration in any case because bonuses should be fully transparent and the various corporate governance initiatives in the UK have so far failed to stem the dramatic increase in executive rewards. Read more
Europe’s top executives have experienced a third year of base pay freezes, with pay consultants warning them to expect the same again in 2012 in the new era of austerity, the FT reports. “Until we see a more upbeat macroeconomic and political climate, companies will show more restraint in paying executives,” said Carl Sjostrom, director of executive reward at the Hay Group, the management consultancy. With the exception of Germany, where regulators have restricted bonuses and base pay rose by a little more than 4 per cent, base salaries across Europe were largely flat in 2011. A separate report by Hewitt New Bridge Street said a quarter of FTSE 100 companies froze salaries this year, while the rest lifted base pay by no more than 3 per cent on average.
Data showing that earnings of directors of FTSE 100 companies jumped by an average of 55% in the past year have drawn fresh calls from politicians for executive pay restraint, reports the FT. The findings from Incomes Data Services, a pay monitoring group, follow moves by UK business secretary Vince Cable this week to investigate executive compensation. Cable said the findings were proof that executive pay needed to “come back down to earth”. The UK Institute of Directors however said the survey “ignored the wider picture”. Read more
Investment banks are using far fewer lucrative “guaranteed” bonus packages to attract recruits in response to the global regulatory crackdown on bank pay, reports the FT, citing a closely watched industry report. Guaranteed bonuses, where employees are promised a fixed incentive payment regardless of their performance or the business’s profitability, accounted for about 5% of the bonuses paid out for 2009 at 37 top financial companies surveyed by the Institute of International Finance, the lobby group - or about half the average of nearly 10% of bonuses for 2008 and 8% for 2007. Read more
Big US companies are putting in place measures to claw back executive pay and adapting their board structure ahead of new corporate governance rules that will come into force as part of financial reform legislation, the FT reports. Of the 100 largest public companies, a record 71 now operate a clawback policy through which they can reclaim senior management’s compensation under certain circumstances — up from 56 last year. Read more
Nissan’s Carlos Ghosn has taken top spot on a list of Japan’s best-paid executives after the carmaker revealed it paid its Brazil-born chief executive Y890m ($9.9m) last year, the FT reported. Among leaders of well-known companies that have revealed managers’ pay so far, the highest compensated boss has been Susumo Kato of Sumitomo, the trading house, at Y186m. Read more
Four foreign executives at Shinsei resigned on Wednesday amid pressure from regulators over their pay levels after the partly state-owned Japanese bank posted two straight annual losses, the FT reported. The four who stepped down included the bank’s CFO, Rahul Gupta, and Sang-Ho Sohn, head of institutional banking. The resignations come amid intense scrutiny of pay in Japan. Read more
Executives at Nomura enjoyed a more than three-fold increase in average pay last year as Japan’s largest investment bank returned to profit from a record loss, the FT reported. The bank paid 10 executives including Kenichi Watanabe, the bank’s chief executive, a total of Y1.45bn ($16m) in salary, stock and cash bonuses in the year to March 2010, vs Y415m the previous year. All 10 of the executives are Japanese and none are former Lehman employees. Read more
Dan Ariely of “Predictably Irrational” fame is out with a new book, the first chapter of which deals with the oh-so-topical issue of banker pay. And according to Ariely’s research, better performance is linked to lower bonuses. FT Alphaville has more. Read more
From Robert Monks, founder of Lens Governance Advisers, who is presenting at the CFA Institute 2010 Annual Conference, which begins on Sunday in Boston…
Extract: Read more
Royal Bank of Scotland plans tougher performance targets in its controversial executive pay scheme after consultations with shareholders, including the government, the FT reports. Chairman Philip Hampton will announce details at the company’s annual general meeting on Wednesday. Read more
US and European banks are offering huge pay packages to hire top bankers in the Asia-Pacific region, in a sign that the compensation curbs pledged by financial groups after the crisis are already being eroded, the FT said. Back in London, RBS handed middle managers a bonus equivalent to 5pc of their salary – by backdating an increase in “benefits” to January 2009, the Telegraph said. Read more
Alistair Darling, chancellor, is preparing a crackdown on “extraordinarily high” bankers’ bonuses when he makes his pre-Budget report on Wednesday, but is expected to reject a windfall tax on bank profits. The chancellor is understood to have ruled out changes to stop banks offsetting past losses against tax, also on the grounds that it would weaken the capital position of banks, the FT said. Read more
Several oil and natural gas companies in the US and Europe boosted their chief executives’ remuneration last year, in spite of often missing performance targets or other measures of investor value, data collected by the Financial Times show. The most significant bonus of 2008 was that of Aubrey McClendon, chief executive of Chesapeake Energy, one of the US’s biggest natural gas producers, the FT said. Read more
John Cassidy, writing in the latest edition of the New Yorker, tells the story of London’s Millennium Bridge in a long, slow-burn introduction to a longer and (by now) very familiar discussion of what went wrong in the Great Crunch.
The Millennium Bridge, of course, proved alarmingly unstable after it was opened by the Queen in June 2000. It was quickly dubbed the “wobbly bridge” after pedestrians noticed it swaying – and the structure had to be closed while the architect Sir Norman Foster and the engineering firm Arup figured out what to do. Read more
Banks will face limits on the total amount they pay their staff in bonuses until they meet more demanding capital requirements, an international body of regulators and central bankers agreed on Tuesday. The proposal for temporary curbs from the Financial Stability Board will be submitted to leaders of G20 countries next week, ahead of their summit in Pittsburgh on September 24, the FT said. Read more
Cash bonuses for top directors of UK companies stayed high last year in spite of the recession, highlighting a trend that will anger investors hit hard by sharp falls in the value of company share prices, the FT said. The UK’s biggest companies still paid executives on average well over half the maximum bonus available, says a report by Hewitt New Bridge Street, a remuneration consultancy. A fifth of the FTSE 100 companies paid out 90 per cent of maximum possible bonuses in a year when the earnings of nearly 90 per cent of FTSE 100 companies suffered share price falls. Read more
Here’s an annual talent/performance ranking for S&P 1500 chief executives compiled by two academics, Jaeyoung Sung from Korea’s Ajou University and Peter Swan from the Australian School of Business, NSW.
Goldman’s 10-Q is always an interesting read, but the former investment bank’s update for the second quarter of 2009, filed on Wednesday, was particularly revelatory.
Take these “other matters”, emphasis FT Alphaville’s: Read more
… Someone should tell UBS.
UBS reported dismal 2Q results on Tuesday — but don’t feel too sorry for its bankers. Read more
Banks that have agreed to pay their executives a guaranteed bonus for more than a year risk heavy penalties, the head of the FSA warned in a letter sent to more than 40 chief executives within the financial services industry. Hector Sants said using long-term guarantees to lure star investment bankers could put them in breach of the authority’s new remuneration code. The new rules will cover all deals struck since the FSA first opened its pay consultation in March, meaning bankers who have recently negotiated guaranteed bonuses may see them revoked, the FT reported. Read more