One Direction and FTSE bosses – How much is too much?

21st April 2013

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It’s OK for boy band One Direction to earn millions of pounds as they have proved their worth – but not all company chief executives can claim the same, according to business secretary Vince Cable writes financial journalist Jill Insley.

Pressed to enter a debate on high pay awards, Cable initially seemed to support Simon Walker, director general of the Institute of Directors, who claimed it was “mad” that the members of One Direction earned £5m each in 2012.

Walker had previously criticised chief executives and other senior staff who have overseen corporate disasters being allowed to walk away with huge payoffs, and the size of bonuses paid by scandal and crises-stricken banks.

Cable said: “I agree with much of what Simon said about the extremities of pay. Much of it is downright insensitive and grossly immoral.”

Perhaps worried about the impact his comments might have on young One Direction fans who will eventually become voters, Cable later clarified his views in an interview with Sky News, saying that he didn’t want to attack One Direction, as “this is one particular group who are apparently very popular and very successful, so I have nothing against them”.

He added: “There is a general issue of chief execs in particular who are paid well beyond what can be justified in terms of the performance of their companies, and that’s something the government is now trying to address.”

Cable and Walker were both speaking at an event staged by the Resolution Foundation and High Pay Centre entitled No More Than We Deserve: The rights and wrongs of high and low pay.

Frances O’Grady, general secretary of the TUC, told the No More Than We Deserve audience that while large chunks of the UK workforce has seen its pay frozen or cut, directors’ pay has risen by 12% and chief executives’ pay by 16% in the last year. She added that while the top 1% of earners in the UK now commanded 10% of the income paid, the bottom half of earners got just 18%.

She stopped short of raising the point made by many high pay critics that companies can only afford to pay multi-million pound packages to their top executives because they pay such low salaries to the majority of their workforce – salaries that are subsidised through state benefits by the tax payer.

However Robert Talbut, chairman of the investment committee at the Association of British Insurers, defended the right of company directors to receive large pay packages.

He warned that there was an “obsessive focus” on a small number of company leaders, and said people who had strived and achieved senior positions in companies, who employed lots of staff, and generated big profits and tax revenues, were being held up as undeserving.

“We are in danger of creating the impression that all achievement and all reward is undeserved,” Talbut said.

How to earn it

Whether you achieve your wealth through reaching the number one slot with your first album in 16 countries, by scoring goals at the World Cup or running a company, a recent poll of millionaires found that more than half believed the key to becoming rich was good, old-fashioned, hard work.

When the deVere Group, the world’s largest independent financial advisory organisation, asked clients with investable assets worth more than £1m “what is your number one strategy to build wealth?”, 52% said their strategy was working hard, 27% saving, and 21% investing wisely.

“There’s a certain perceived mystery surrounding how the wealthy become wealthy. But our study shows that the majority of millionaires accumulate their money the old fashioned way – they work for it,” says deVere Group’s chief executive, Nigel Green.

However he added that it was probably a combination of all three that resulted in the rich really becoming rich.

Research by Lloyds TSB Private Banking backs up his belief that those who are in a position to accumulate wealth can only benefit by saving and investing wisely.

 

The bank’s survey found that net household wealth surged past the £7trillion point for the first time last year, taking the increase to 62% during the past decade, despite the double dip recession and disappointing house price performance in most parts of the UK. The increase in household wealth has outstripped increases in household gross disposable income, at 44%, and the the price of consumer goods, at 29%.

The increase is down to the ballooning value of financial assets, with UK pension values growing by an estimated £1trillion since 2002 and deposits by £476bn. The average UK household now worth £255,502.

However, the Lloyds figures hide huge disparities in wealth and earnings across the UK.

Nitesh Patel, economist for Lloyds TSB private banking said that although household wealth had grown by an estimated £2.7trillion over the last 10 years, a gap had been created between the wealthiest households and the rest.

“The wealthiest 10% of households hold 22 times more wealth, on average, than those in the bottom half,” he said.

32 thoughts on “One Direction and FTSE bosses – How much is too much?”

  1. Dave Holden says:

    The electoral calculation of blowing this bubble I find interesting. Presumably at some point home owning parents are going to, or are already, realising their offspring either cannot move out or are having to suffer at the mercy of the, lets say varied quality, of the private rental sector. Surely a dent into the “feel good” of their own rising asset price.

    1. therrawbuzzin says:

      I have no kids, yet I worry for younger people, especially those of average ability.
      The continued stigmatisation of social housing is leaving it, in many areas, little more than a dumping-ground for the underclass, mortgages are way beyond realistic reach, leaving them at the mercy of often-unscrupulous b-t-lers.
      What I would say though, is that the working-age demographic has changed for this generation.
      Universal further/higher education, combined with the expectation of a gap year, means that the majority of younger people do not seriously join the workforce until their mid-twenties, so waiting ten years before being able to afford a mortgage does slant the demographic data somewhat.
      We either have to build homes and sod present owners, or lower housing expectations.

      1. Anonymous says:

        With the former the UK implodes, with the latter it limps on for a short period. The establishment rather like the status quo so latter it is.

    2. Anonymous says:

      I don’t think this has much to do with the election. This is being done so the UK appears a going concern for a bit longer.

      There is a shift in sentiment. Boomers are realising it wasn’t a free lunch and (jesus god no) the boomers are inconvenienced!!!

      1. therrawbuzzin says:

        This is the big reason why Westminster HAS to hold onto Scotland as long as possible, and is playing:
        25% of Europe’s harnessible wave power.
        25% of Europe’s harnessible wind power.
        All that oil, and onshore and offshore coal reserves all underpinning the debt.
        No Scotland = POP!

        1. forbin says:

          no worries – we’ll just debt load ’em before they go!

          Forbin

          1. Jim M. says:

            Wait a moment!

            You’ll never convince an entire nation to take on an unfeasibly large debt just because you tell them it’s in their best interest and, after all, it’s only what they owe…

            Oh…

            More popcorn!

        2. Anonymous says:

          I think it’s going down with or without Scotland. Without yes perhaps sooner, but not a lot in it.

    3. Anonymous says:

      Hi Dave

      I think that you are demonstrating an ability to think ahead way beyond that of our political class! Perhaps the saddest part is that whoever one chooses the vote for the policies are likely to turn out to be very similar.

  2. therrawbuzzin says:

    Hi Shaun; would you consider the following sentence to be true?
    “Building enough homes for our people would destroy the economy.”
    Because if, like me, you do, then we need to ask what an economy is for, and whether we should serve it, or it us.

    1. Laughing Gnome says:

      Well it’s certainly not for the benefit of the majority of us is it therrawbuzzin, although it serves some handsomely. The comatose and indifferent stance of the Bank of England for well over a decade shows how highly they rank the good of broad society.

    2. Anonymous says:

      Spot on. Past the point of no return, like an oil tanker that saw the rocks too late.

    3. Anonymous says:

      Hi therrawbuzzin

      I am a fan of this from Joseph Schumpeter “This process of Creative Destruction is the essential fact about capitalism.” So we actually need some destruction. One of the problems of the bailout/QE/TBTF culture is that this has been stopped and at each new crisis we are weaker than the time before.

      There are many questions we need to ask but instead our political class applies the same old failed solutions…

      1. therrawbuzzin says:

        I tend to see the term “creative destruction” as embuing the process with some sort of moral being, as being a solely positive function; that which is destroyed deserving its fate. I see the process as amoral, and prefer to use the simpler, and in my view, more apt term:
        “Devil take the hindmost.”

  3. Pavlaki says:

    We would have to build homes at a phenomenal rate and cover large tracts of land with estates to keep up with demand. High levels of immigration, foreigners investing or parking money in UK property and ever more people living alone is creating an insatiable demand. Perhaps the government could start by imposing a higher capital gains tax on Non residents? That might take some of the froth off the top which should cool thing a little. Otherwise there will be boom and bust but the trend will be ever upwards. I met a family in Greece who have bought a London flat as a hedge against the Euro imploding or haircuts on bank deposits. Any capital gain is a bonus as all they wanted was security. One less flat on the market for UK buyers.

    1. Anonymous says:

      Security and an asset outside the Greek taxman’s juristriction

  4. Anonymous says:

    Sean, when you say N times earnings, can you clearly define whether you mean primary earner or household. The elite seem to have carefully elided the 3 times primary earner into 3 times household earnings which now all women have to work means people are paying twice as much for the same pile of bricks.

    The above plus the constant references to 2007 as “normal” make it hard to believe that there are not bigger players directing events IMHO. I’m normally staunchly anti-conspiracy but the consistency of the MSM hymn sheet makes it hard to maintain this position.

    ps the UK is going down :-)

    1. Anonymous says:

      Hi Progrock

      To answer your question the numbers are individual and I choose the median numbers as they are less biased than the mean or average numbers invariably used. As to the detail here it is.

      “For Earnings we just move the dataset on one year and today are using the 2013 Annual Survey of Hours and Earnings (ASHE) which provides information about the levels, distribution and make-up of earnings and hours paid for employees within industries, occupations and regions in the UK.”

      1. Anonymous says:

        Many thanks for clarifying!

  5. Pavlaki says:

    One thing I have noticed is that as soon as the economy picks up our friends all want to move house and upgrade – which begs the question. Is the booming property market driven by an improving economy or is it the other way around? From within my own circle it looks as if it is the economy driving the property market. Our fascination with houses and the need to move ever further up the ladder is endless!

    1. Anonymous says:

      Hi Pavlaki

      That is an interesting line of thought! If we explore it we see that the UK would have begun a more gradual balanced economic recovery and that the Bank of England whose job is to stop excess and bubbles operated to create one. It does fit in with my theme that the majority of its moves have been panic-measures, after all this time last year some on the MPC wanted more Quantitative Easing. Could that have been more wrong?

  6. Patrick, London says:

    Ah, the housing ‘market.’

    Still seems odd to me that no single political party, has stepped forward and actually said anything solid regarding any of the real issues beyond mostly empty promises about house building. Even the Lib Dems could have promised some of the below knowing they were unlikely to have to actually implement any of them.

    Greater transparency and taxation on foreign ownership and empty properties.
    Discouraging excessive BTL through punitive taxation.
    Reducing red tape around individual self build.
    Adding Capital gains tax to first/sole property offset against improvement costs.
    A national, transparent review of land ownership.
    Greater investment in community build schemes.
    Transparency on Parliamentary and senior civil servants financial circumstances as regards multiple property ownership.

    1. Anonymous says:

      Hi Patrick

      I took a look again at the Kate Barker review of the UK housing situation from 2004 and it could pretty much be written again now. As you say politicians of all hues have simply made empty promises. This bit however must have got worse.

      “Affordability has worsened between cycles. In 2002 only 37 per cent of new households could afford to buy a property compared to 46 per cent in the late 1980s.”

      As to your list I agree that it is time for changes and they have to be fundamental to deal with the scale of the problem.

  7. Jim M. says:

    Hi Shaun,

    I fear that the auto-correct gremlins have been at work…

    It’s Blaenau Gwent, and a lovely area to boot..

    http://en.wikipedia.org/wiki/Blaenau_Gwent

    1. Anonymous says:

      Hi Jim M

      Apologies it was the Shaun gremlins here and I expanded the size of the table to “make sure” I got it right. Oops!

      Lovely area,cheap house prices, should we be encouraging people to move there?

  8. forbin says:

    Hello Shaun,

    it is rather depressing that all the UK economy really is .. is selling houses ( and not just to each other – me thinks the Russians have a bob or two in the London scene!)

    and I agree its just madness that Manstream take this ” 2007 was all well” marlarky as written ! WTF ?

    We will , or really the BoE is painted into a corner – one tick upwards and the ballon will pop ( well maybe 2 ) . Does anyone know why we should not goto 10 times or 15 times salaries , sorry its incomes now (!) , ?? like Charlie Bean suggested

    is that our leaders game plan?

    for 30 years or more we’ve not build housing and what we did was pokey and substandard ( trust me on this as purchaser! ) , we dont like flats but if we’re to have the population of a Hong Kong then we will have to loose that phobia…

    Thinks and shudders , every 3 bed semi costing 3 million ( in todays money) below the south of Brum!!

    Forbin

    PS: popcorn ? naw . prog had the right idea , get out whilst the going’s good !

    1. Anonymous says:

      Hi Forbin

      The issue over substandard building is one I am familiar with because my father before he retired was a plastering sub-contractor and he tells some horror stories. How about inwards sloping balconies for example? He blames the influx of (inexperienced) graduates to the main building companies as a cause, but are we really sure it is all worse?

      Anyway corn futures are dropping again so with them being 26% lower than this time last year maybe there is hope for your bag of popcorn’s price…

  9. Eric says:

    Good stuff again Shaun,
    It amazes me how easily the men in grey suits confuse “house affordability” with “loan affordability” (Is it deliberate?) . When I had a mortgage loan affordability was a huge problem as mortgage interest rates reached double digits.

    Of course the nightmare begins when both become unaffordable.
    As Eddie Waring sometimes remarked – “Back at the Fil Rouge things have suddenly got worse for the home team …”

  10. Max says:

    It’s amazing how many people believe that building homes is the answer. I can only conclude that they are happy with the price rises and know this is not the answer, or they are very very stupid.
    Say you actually did build more and more, there would be no land left eventually and then, when the foreigners eventually find a better ‘investment’ than London property, the market would be a disaster like Spain.

    1. Anonymous says:

      Hi Max,

      Firstly you touch on population issues.

      Secondly, the state of the Spanish property market does have winners. Eg, rental tenants and first time buyers.

      1. Max says:

        Good point Expat. You might add “…if they can find a job in an economy built on building houses and rising house prices!”
        I know several spanish people over here who cannot find work in Spain.

  11. Anonymous says:

    Great column as usual, Shaun. I wouldn,t have known about Governor Carney’s interview if it weren’t for your take on it.

    Mark Carney is aptly named. He is every inch the carney barker, selling his product without much concern for the veracity of what he says. Canada’s housing completions for all areas were 186,855 in calendar year 2010, 175,623 in 2011, 180,093 in 2012 and 185,494 in 2013. The data come from Canada Mortgage and Housing Corporation, so called, as some wit said, because they put mortgages ahead of housing. I did a quick check for 2013, and even omitting Northern Ireland, whose completions I couldn’t find, Canada’s completions for 2013 weren’t even 47% higher than the UK’s. Obviously, Governor Carney wanted to make a point that UK completions weren’t really very high, if anything should be higher, and it served his purpose to say that Canadian completions were double those in the UK, so as a good carney barker would, that’s the ratio he used. Of course, these series are volatile for both Canada and UK, but no recent year is going to show anything close to Canada having twice the completions that the UK has.
    Andrew Baldwin

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