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Business: Analysis: Bosses' pay increased by 45% last year, but the Institute of Directors won't give you a rise
[May 16, 2011]

Business: Analysis: Bosses' pay increased by 45% last year, but the Institute of Directors won't give you a rise

(Observer (UK) Via Acquire Media NewsEdge) A few squeaks of modernisation are emanating from the crusty old Institute of Directors. The pinstriped fraternity has shifted its annual shindig from the venerable Royal Albert Hall to the O2 arena in Greenwich. An unsettling blast of Lady Gaga welcomed one speaker onto the stage. And veteran director general Miles Templeman is shortly to step down.

Certain old allegiances, though, never change. Britain's top trade unionist, Brendan Barber, took to the stage on Wednesday, gazed out at the massed ranks of sceptical faces, folded arms and charcoal suits, and remarked: "At the TUC, this is what we call a difficult away fixture." He got a brief laugh, but that was the only sign of warmth. The TUC man played his role as the pantomime dame, telling Britain's top employers everything they didn't want to hear. Amid dour economic conditions and brittle corporate profitability, it takes a tough character, even perhaps a contrarian, to call for across-the-board pay rises. But Barber is that man.

"Pay your workers more," said Barber, to stony silence. "Sounds ridiculous, but hear me out." He suggested that household debt, forecast to reach pounds 2tn by 2015, could become "an albatross" around the neck of Britain's economic future. "Unless workers can see their pay packets grow, we won't be able to build sustainable economic demand." He added: "Now is surely the time for a real change in direction, to build a fairer, stronger economy, to nurture demand based on wages, not debt." Barber threw in quotes from Ben Bernanke and former IMF chief economist Raghuram Rajan to support his case. But Britain's employers aren't buying it.

As the graph shows, once you exclude the ups and downs of bankers' bonuses, earnings are flatlining. Average annual pay growth in the economy dropped from 2.3% in January to 2% in February - well below the rate of inflation, which is 4%. The Institute for Fiscal Studies forecasts a 2.2% fall in median incomes between 2009 and 2011. Living standards are in a vice-like squeeze.

But the old arguments between unions and employers are as entrenched as ever. Barber, under questioning, defended his movement's enfants terribles, including bellicose RMT provocateur Bob Crow. And the view from the floor at the Institute of Directors to Barber's call for higher wages bordered on scornful.

"The world is full of dreamers," said one delegate, Sohail Amer, chairman of a hi-tech lighting manufacturer, McGeoch Technology. "But there's a difference between dreaming of something and actually going out and doing, achieving something." Amer bluntly blamed "dinosaur unions" for the loss of Britain's coal and motor industry. And, for good measure, he took a pop at education: "I have to employ graduates who can't even read or write English." The prospect of pay rises got similarly short shrift from Andrew Rodda, whose Cornish dairy, AE Rodda, is famous for its clotted cream. He pays "slightly above" the minimum wage but reckons staff can be unduly spendthrift. "We're all told you must go on holiday all the time and do all these other things," he complained. "There's more to be gained from teaching employees how to manage their money more effectively than giving them more money to mismanage." And Philip Higgins, managing director of an engineering recruitment firm, Rullion, reckoned it made little sense to raise wages in the middle of a period of austerity: "In a climate where costs are being tightly controlled and in many cases reduced, raising salary levels seems a simplistic viewpoint." So pay rises? Not likely, despite evidence that many workers are struggling to make ends meet. A report from London mayor Boris Johnson's economic unit last week concluded that one in six employees in London are earning below the pounds 8.30-an-hour "living wage" needed to make ends meet in the capital - a figure which has been described by the mayor, hardly a leftie, as "morally right".

The IoD's director general reckons Britain's employers are too often characterised as heartless mill owners. Templeman said: "The idea that companies are exploiting their employees, or exploiting their customers, is no longer true - if it ever was." Maybe. But let's remember that boardroom pay at Britain's top 350 companies jumped 45% last year, as a revival in bonuses heralded a return to the good times. The High Pay Commission will produce figures tomorrow suggesting that the proportion of pay going to Britain's highest earners is reaching a level unseen since Victorian days, tilting us dangerously towards a "trickle up" economy.

Britain's directors are foolish to dismiss these concerns. During the good times, every multinational boss loves to waffle that talented staff are a company's most valuable asset. Loyalty works both ways - companies will ultimately benefit if they stand by their people in the depths of a downturn, too.

Insider dealers don't hold all the cards any more Fourteen-nil! Prosecutors on Wall Street scored a stunning victory last week as a New York jury found hedge fund tycoon Raj Rajaratnam guilty on all 14 of the criminal charges of insider trading against him. Hedge fund managers across the industry suffered queasy lurches in their stomachs - although none, naturally, will admit it.

Rajaratnam, a former billionaire, faces up to 20 years in jail in the biggest insider dealing bust in Wall Street history, achieved through months of FBI-monitored phone taps. The Sri Lanka-born financier made $63.8m from shady under-the-counter tips, provided by a network of informants reaching the highest level of companies including Goldman Sachs, Intel and McKinsey.

Raj's defence argument, at least, looks honest. He essentially argued that everybody was at it - that information about corporate earnings, mergers and profit warnings constantly leaks into the markets and that trading on tips is ubiquitous. But his associates seemed to know they were breaking the law. One of them, Danielle Chiesi, was caught telling a contact: "I'm dead if this leaks . . . I'll be like Martha fucking Stewart." The amount of capital invested in hedge funds touched $2tn in April, according to Chicago-based Hedge Fund Research, and 935 new funds popped up last year, all battling for the elusive "alpha" - a measure of absolute return. A few seconds' advance warning of an announcement can provide an edge. A poll by Trader Monthly magazine back in 2007 found that 58% of respondents would trade on an illegal tip if they thought there was no risk of being caught.

In this environment, prosecutors smell blood. A trial of three more suspects, including a former employee of Rajaratnam, begins on Monday. And a broader probe is under way into so-called "expert network" firms, which do murky research for hedge funds. New York's US attorney, Preet Bharara, has explicitly framed this as a wrestle with Gordon Gekko: "Sometimes greed is not good. This case should be a wake-up call for Wall Street." (c) 2011 Guardian Newspapers Limited.

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