Rip-off News round-up. Our pick of the last week's media (Thu 20th September)

Lloyds Bank's secret "bonus list" rewards hard sell sales culture among 'advisers'
Leaked document shows how many points each member of Lloyds staff 'scores' if they sell certain products. If they hit targets they win bonuses. But this can result in customers not getting the 'best advice.' DAILY MAIL

("We totally deny these allegations" said Lloyds in a hurriedly called press conference that nobody really asked for, during which they tried to sell absolutely everyone some pet insurance)

UBS trader 'gambled away' £1.4bn

A City trader "gambled away" £1.4bn ($2.3bn) of his firm's money and caused "chaos and disaster", a jury has heard. The prosecutor said that at one point "Mr Kweku Adoboli was betting the entire bank on the toss of a coin. He was a greedy banker out of control and out for himself." The fraud began in 2008, after the start of the banking crisis. BBC NEWS
("But had the fraud taken place before 2008, he'd be Chief Executive by now. Makes you think..." said defending counsel)

Payday lender Wonga trebles earnings as recession worsens

Short-term loan provider benefits from surge in applications. The number of loans it provided in 2011 quadrupled to 2.5m, and its income rose 225%. The CEO denied they were legalised loan sharks. He explained that most of the loans are small, and paid off soon after. GUARDIAN
("...although we keep receiving a £50bn loan application from a Mr G Osborne. As a responsible lender, we always turn him down," he added.)

Homeless families in B&B accommodation up by 44%
20 councils warned their insufficient budget meant they had to house families in B&Bs for an 'unacceptably long time'. But the housing minster insisted councils had sufficient funding to provide a perfectly adequate safety net. GUARDIAN
(When asked what he meant by a safety net, he replied "You know..., one of those things made of string.")

Private health firms told to get set for £20bn NHS bonanza
A report commissioned by private sector providers says there is 'significant opportunity for the private sector in primary and secondary care' by taking over GP surgeries and setting up new community health clinics. Andy Burnham, the shadow health secretary, said "Worse still, in Jeremy Hunt we now have a health secretary who bent over backwards in his last job to promote powerful private interests." GUARDIAN

(“Creating commissioning contracts clearly confuses that Hunt,” criticised one concerned consultant)

NYSE pays first-ever fine for compliance failures that gave some favoured customers trading information before the general public

The New York Stock Exchange's "technical problem" began in 2008. "Improper early access to market data, even measured in milliseconds, can in today's markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors," said the regulator. SECURITIES AND EXCHANGE COMMISSION (SEC)

Iain Duncan Smith's £2bn "benefit tourism" estimate cut by 92%

Last year Work and Pensions secretary Duncan Smith condemned the EU proposal that allowed anyone in the EU to claim benefits in the UK. He had said it could cost the UK more than £2bn a year. Now he admits it is only £155m. Officials said the £2bn figure was the "best estimate at the time". BBC NEWS
(When asked whether all his other predictions had a 92% margin of error, the minister replied, “No, just one: that we will win the next election with an overwhelming majority.”)

Mitt Romney has said that people taking home $250,000 (£154,000) are "middle income". Actual US average income is only $39,959

The misunderstanding explains why Mitt thinks all those "middle income" people he meets dining in ritzy restaurants and driving new cadillacs aren't suffering in the current bust. TELEGRAPH


The professional body for tax accountants says the government's Advisory Panel on tax dodging should have no representatives from HMRC 
"We think it is necessary for it to be genuinely independent, drawing on those with current practical tax experience and with no HMRC representatives" said the CIOT president. Chartered Institute of Taxation
(In other news, football matches will now only have one team on the pitch at a time, packs of cards will contain 52 aces, and juries will consist solely of the friends and family of the accused)

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Wonga loans quadruple as recession deepens

Fee takes a Wonga employee to task over its lending criteria

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Why nationalising the Royal Bank of Scotland (RBS) will save the soul of banking

In the midst of the usual summer silly season, rumours went round that the UK government was thinking of fully nationalising the Royal Bank of Scotland. 

What a good idea we say. Because far more than further appeals to bankers' decency and threats of regulation, this actually could have saved the soul of the financial services industry.

When it rescued RBS in 2008-09 the government bought 84% of a pig-in-a-poke. With no time to look in the bag, £45 billion of taxpayer money was hurriedly handed over. Ministerial hopes to unload this embarrassing porker, that kept on snouting down bonuses in spite of continuing dismal performance, may lead to the government breaking up and selling the beast as chump chops. Already September 2012 saw RBS putting its Direct Line subsidiary on the block. If this continues, the taxpayer will be left with just the pig's squeal - which would suit the bankers just fine.

Royal Bank of Scotland share price, London Stock Exchange

Bankers and their political helpers assert that if we put a stop to excessive pay and lax regulation they would leave. And thus, they assert, Britain would have no banks. They want us to believe that the alternative to dodgy banks is no banks. A nationalised RBS could prove that the alternative to dodgy banks is actually not dodgy banks, run by people paid sensibly with their customers' interests at heart.

Financial Services executives have always maintained an exceedingly effective smokescreen to avoid sanctions for their scams using their counter and call-centre staff as chaff. They avoid regulatory action with the excuse “a small minority have let us down.” They avoid controls on pay and bonuses asserting “most of our staff receive just a few hundred pounds”.

It is true. Most bankers are legal, decent, and honest. An excellent and effective piece of wisdom I heard somewhere: If you add 1 pint of sewage to 99 pints of milk you end up with 100 pints of sewage. It is this 1 pint that controls and corrupts the soul of banking.

When he asserted that “a small minority have let us down”, Bob Diamond wrote the truth. At any one time only a small minority are caught in the spotlight of disgrace. Mis-selling of endowment mortgages was ancient history by the time Payment Protection Insurance (PPI) hit the fan, which had faded from the headlines by the time the LIBOR fraud was brought front and centre, which too will have exited stage left pursued by nothing much by the time the Interest Rate Swaps deceit gets its brief moments in the limelight.

The summer of 2012 saw another clutch of banking insights from senior politicians and regulators.

George Osborne, the chancellor, said in Parliament, just before heading off on his holiday:

Through 2005, 2006, and early 2007, we see evidence of systematic greed at the expense of financial integrity and stability. They knew what they were doing wrong.

“Keep a secret” one trader tells another in February 2007.

“If you breathe a word of this I’m not telling you anything else”.

Yet no one at Barclays prevents them. And no one in the tripartite regulatory system knows anything about it.

Lord Turner, chairman of the Financial Services Authority, said in a speech at Bloombergs:

Huge bonuses may have amazed and bewildered the ordinary citizen, but the experts were on hand to explain that in some mysterious way ever more intense and complex financial activity was increasing the total size of the economic cake, with the prosperity of all enhanced, even if less richly than that of some bankers.

The reality being that all the growth went to the favoured few. For 90% of Britons, their prosperity has stagnated for decades.

http://g-mond.parisschoolofeconomics.eu/topincomes/#Database:

Turner went on to say, quoting the economist Raghuram Rajan:

many of the key participants [dodgy bankers] have no direct contact with the end customers [that would be us] whose lives they are affecting, and only transient contractual relationships with their counterparties [other dodgy or incompetent bankers managing our savings].  And it is simply easier to make huge amounts of money out of a multi-step chain which connects ill-informed investors in one country to ill-informed sub-prime borrowers in another, and still go home believing that you are a fine upstanding member of society, than knowingly to sell a bad product or service to a customer with whom you have more direct contact.

In short Turner observes that much of ‘financial innovation’ simply made it easier to rip off customers without meeting them. It is much easier to cheat someone if you don’t have to look them in the eye and you don’t have to see the consequences, the financial hardship and the repossessions, of your deceits and dissembling.

The FSA released a consultation stating that the corruption has eaten its way down to junior staff. Martin Wheately, Managing Director of the FSA and CEO designate of the Financial Conduct Authority (FCA, which will take over from the FSA as the new financial services regulator), said in his speech to senior bankers at a Thomson Reuters Newsmaker event

“while public attention has been on the huge rewards on offer to the few, the effect of more modest rewards on the many needs to be dealt with….Incentive schemes on PPI were rotten to the core”

We looked at 22 firms of all sizes, including high street banks, building societies, insurance companies and investment firms.  And what we found is not pretty.  Most of the incentive schemes we looked at were likely to drive people to mis-sell to meet targets and receive a bonus

.. another firm allowed sales staff to earn a bonus of 100% of their basic salary for the sale of loans and PPI, but the bonus was only payable to those who had sold PPI to at least half their customers.”

Wheately boasted,

We, as the regulator, intend to change this culture of viewing consumers simply as sales targets and I am going to be personally involved in getting this right.   This will be part of the ongoing improvements we make to regulation as we seek to make markets work well and give people a fair deal.

A document leaked by a member of Lloyds Bank counter staff exposes the incentives and pressures on junior bank staff.

Should we feel more secure knowing that Wheatley of the FCA is on the case? Back in 2009 the then FSA chief executive, Hector Sants, said at an earlier Thomson Reuters Newsmaker Event

There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.

The bankers chuckled up their bespoke sleeves, with scant sign of nerves. And in March 2012 Sants announced his decision to quit, much to the indifference of the un-scared bankers.

In the end, regulators won’t be able to beat determined banksters. The excellent Andy Haldane, who would make a most entertaining and perhaps effective Governor of the Bank of England, observed in his summer speech at Jackson Hole that there have never been more regulators, rising from 1 regulator for every 11,000 financial services employees in 1980 to 1 for every 300 by 2011:

"In the UK up until the late 1970s, bank supervision was performed by the Bank of England on an informal basis, with a team of around 30 employees. Even when the Bank was given statutory responsibility in 1979, fewer than 80 people were engaged in the supervision of financial firms.

In the period since, the number of UK financial supervisors has increased dramatically, rising almost forty-fold (Chart 1). In response to the current crisis, regulatory numbers are set to rise further. Over the same period, the number of people employed in the UK financial services sector has risen fractionally. In 1980, there was one UK regulator for roughly every 11,000 people employed in the UK financial sector. By 2011, there was one regulator for every 300 people employed in finance."

The financial services industry is unique in the wantonness of its excesses. Other professions are paid very well, but on the whole their members have to prove their worth in formidable tests. Lawyers have to show they are smarter than other lawyers. Accountants have to show they are smarter than taxmen. Doctors and engineers have to prove they can outwit nature – keeping patients healthy, keeping a building standing, a ship floating, a plane flying. Sportsmen compete in the most public way possible, and entertainers wrestle with the unforgivingly fickle public voting with their television remote controls.

But financiers simply have to steal the blouses off grannies’ backs.

Surely it is no surprise that excessive pay attracts people who do whatever is necessary to be paid excessively?

So we say, nationalise the Royal Bank of Scotland. Run it like a “Peoples’ Bank”, paying sensible salaries and making sensible profits. Cap remuneration at £1m (the new Barclays CEO is on £8.6m including bonuses etc) - if that isn't incentive enough then find people with nobler motivation. That would frighten bankers far more than a ruthless regulator’s or a malleable minister’s empty threats.

Nationalising RBS will also provide a refuge for those who have been scammed by excessive overdraft charges, PPI, and all the other stuff. And also for banking staff who are fed up of scamming their fellow citizens. Currently our choice is to jump from one frying pan to be sizzled in another frying pan.

Bankers fear nothing more than a bank being run successfully by people on ordinary salaries who do not resort to excessive charges and other scams. The silly season saw talk of nationalising the Royal Bank of Scotland. It’s not such a silly idea. 

Nationalise RBS. Bankers, with no fear of politicians or regulators, would fear nothing more than this. Britons would be far less ripped-off.

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The 'fiendish' loopholes that keep tax dodgers ahead of HMRC

Chris, KJ and Fee discuss HMRC's attempt to crack down on tax avoidance

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Rip-off News round-up. Our pick of the last week's media (Thu 13th September)

Health and safety inspections cut in regulation curb

Plans to exempt thousands of businesses from health and safety inspections are to be announced by ministers. "We have identified the red tape and now we are going to cut it," said Business Minister Michael Fallon. BBC NEWS
(Mr Fallon was speaking whilst standing under a poorly secured 500kg chandelier. Held up only by a piece of red coloured tape. Which someone promptly cut.)

Planning rules on building extensions to be relaxed 'to boost economy'

The government wants to get planning officers "off people's backs." But the Local Government Association says such red tape is a "myth." It released figures showing a backlog of 400,000 prospective homes which have planning permission but have not yet been built. BBC NEWS

HMRC's special tax unit nets extra £500m from Britain's richest

The High Net Worth Unit has investigated 5,000 of the wealthiest taxpayers, each with assets exceeding £20m, and exceeded its collection targets. The unit achieved this with only 380 staff. GUARDIAN
("It's so profitable we're going to outsource this unit to the private sector," said the Minister for Outsourcing Everything Profitable to the Private Sector)

Blair snaps up a nifty million bucks brokering Glencore's new 'take it or leave it' £22.5bn bid for Xstrata

After an 11th hour intervention from Tony Blair that earned him £625,000, the long-running saga of the Glencore-Xstrata mining merger looked to be entering its final chapter. DAILY MAIL

Thousands set to lose out as drugs giant Glaxo slashes pension benefits for its UK workforce

The drugs giant becomes the latest in a long line of blue-chip businesses to take a knife to company pensions.  Unions asked the government what their policy was to cope with this "race to the bottom" for pension provisions. DAILY MAIL
("Take two aspirin? That's as far as we've got," said our government insider)

Workers borrow more than £300 a month

The amount employees are borrowing to get through the month had risen sharply from £127 to £327 pounds since March. TELEGRAPH

US tax authorities award $104m (£65m) to UBS employee for exposing bank's massive tax dodge

Bradley Birkenfeld rewarded for being the whistleblower in a major tax evasion case against UBS, the Swiss bank. Yet Birkenfeld  had been jailed for conspiring to defraud the US after admitting to assisting a wealthy American real estate mogul conceal $200m (£121m) from the IRS in offshore accounts. TELEGRAPH

(So... a thieving banker is released from jail and given $104m for finally telling the truth. THERE IS NO GOD.)

Business secretary Vince Cable dismisses right wing claims that further business deregulation is the key to growth
Cable rejects looser "fire at will" employment laws. He said consultation showed minimal business support for the idea, adding that greater job insecurity was undesirable at a time of low consumer confidence. But he recommends the removal of a chunk of health and safety legislation. GUARDIAN

Flagship aircraft carrier HMS Ark Royal will be sold as scrap for £3m

The ship was decommissioned 5 years early to help tackle a multi-billion pound defence deficit. Attempts to sell it to developers as a helipad, casino, or other, have failed. BBC NEWS

Divorce settlements should be worked out according to a mathematical formula 

Formula would divide up a couple’s assets depending on income and how long they have been married, a major review has suggested. Using the formula can provide clarity and satisfy both partners, before it all ends up in court. "But it doesn't mean, come the divorce, if you've done nothing you'll get nothing". TELEGRAPH

("Phew!" said the junior partner in our coalition government.)

Ofqual 'ordered late changes to GCSE English grade boundaries'

Letters leaked to the Times Educational Supplement show exams regulator Ofqual ordered exam board Edexcel to make changes beyond what "might normally be required". As a consequence, the same mark that got a student a C in January got a student a D this summer. BBC NEWS

(Moving the goal posts AFTER thousands of balls have been kicked into the back of the net takes some doing.)

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SMEs, make sure you don't get rolled-over by your energy supplier

Guest post by James Newhouse who works alongside PowerExperts.co.uk

When it comes to business gas or business electricity suppliers, there is a serious pitfall that both SME and larger organisations can become victim to – the ‘rollover’. Many do not realise when their business energy contract is up for renewal and do not realise that if they do not act to renew their contract or change supplier at the end of their contract, it can be ‘rolled over’ automatically at less than competitive rates. In fact, in a lot of cases, a rolled over contract can result in a 40% price hike or more according to this parliamentary report:

Average Prices:               Current Price                Rollover Price                 Switching Price

Business Electricity       9.3p/kWh                           14.25p /kWh                         10.15p/kWh

Business Gas                  2.5p/kWh                            4.5p /kWh                              2.9p/kWh

The average SME spends £2580.67 per month on their business energy electricity bills if the average unit price for an SME is 9.3p/kWh with an average standing charge of 22.35p per day – the standing charge accounts for £670.50 of this. If this contract is rolled over onto "out of contract" rates, there could be a monthly spend of £2926.87 on electricity alone, not including the increased daily standing charge. That’s already a 13.4% increase for electricity without even considering the gas hike. 

And even though you rolled into this new contract without intending to, you will be locked in until the next renewal / expiry date (12 months or more) unless you want to pay a hefty mid-contract termination fee. Businesses are therefore inadvertently committed to the increased rate until the end of new contract.

In order to avoid your contract automatically rolling on, you need to renegotiate your contract or transfer to a new supplier before it is too late. The biggest complication for any business is knowing the restrictions your current contract can have on switching. It is essential you are aware of all of the terms and conditions of your current energy provider.

Ofgem have released advice for firms on how to understand business energy contracts, warning that it is vital to understand them to keep in control of business energy spending. Ofgem’s business energy contract guidelines include hints and tips such on how to avoid being ‘rolled over’ including:

• Make sure you have a duplicate of your contract – For micro businesses, energy suppliers must directly send you a copy of your contract terms and conditions. For larger organisations, your supplier must ensure that you are able to see a copy of the terms and conditions, but request to have a copy made and sent to you in addition to this.
• Know when your contract ends – Make a note of the date at which your contract begins and ends as well as the valid notice period in which you are able to switch. Put these dates in your business calendar and set up online reminders to ensure you do not miss the opportunity to switch at the end of your term.
• Know the difference between renewal and notice periods – You should be aware that the terms in a residential and business energy contract are different. Residential contracts can be fixed or variable whilst business contracts are always fixed term. Make sure you are fully aware of the exact window in which you can notify your supplier about switching your deal. You must send a written notice to your supplier to terminate the contract if you are planning on switching to a cheaper supplier. Click herefor example letters.
• Understand what will happen if you don’t switch or sign a new contract – If you are a micro business and your contract rolls over, the new contract can be up to one year and the rates of your terms can increase without notice. If you are a larger company then the supplier can commit you to a new contract that is longer than one year! Make sure you understand in advance what your company will be subject to in the case of a rollover.

If you are not ‘rolled over’ by your energy supplier at the end of your contract, you could still be charged at a higher rate for the energy you use thereafter, due to contractual obligations. So beware!

This information was provided by James Newhouse who works alongside PowerExperts.co.uk , where you can get free advice and information about getting cheaper prices for business utilities and supplies for commercial organisations in the UK. 

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HMS Ark Royal sold as scrap for £3m

KJ and Fee consider an alternative future for HMS Ark Royal

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Liebrary: The only way to save our children from paying the national debt is to cut services?

August 2012 threw up another howling hypocrisy in the “we are all in it together” mantra:

• The Bank of England admitted that the wealth enhancing benefits of its Quantitative Easing (QE) money printing exercise had gone to the wealthiest – giving them an estimated £600 billion boost to their wealth.

• Assorted Tory politicians jumped over poor bedraggled Nick Clegg for suggesting a wealth tax.

To put this in perspective, HM Treasury figuresshow the UK National Debt passed £1,000 billion this year. Just the £600 billion increase to the wealthy resulting directly from QE would pay off well over half of the national debt.

However the government prefers to pump QE money into inflating the wealth of the wealthy by £600billion, and pay off the debt by cutting jobs, salaries, services, and pensions for everyone else.

The amiable Tory MP Bernard Jenkin dismissed the notion of a wealth tax as the "politics of envy", advising  not to 'strangle the goose that lays the golden egg'.  Jenkin overlooks that while this particular goose ate all the corn, it hasn't produced anything from its nether regions that brought benefit to 90% of ripped-off Britons whose incomes have stagnated for decades.

http://g-mond.parisschoolofeconomics.eu/topincomes/#Database:

And in spite of all the exertions of the corn-fed honkers, half of us have absolutely no assets according to Bank of England figures:





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Rip-off News round-up. Our pick of the last week's media (Thu 6th September)

Save the Children say poorest UK children are now not getting regular hot meals and clothing

The charity says the UK's poorest children are bearing the brunt of the recession. The charity said: "It is shocking to think that in the UK in 2012, families are being forced to miss out on essentials like food or take on crippling debts just to meet everyday living costs." BBC NEWS

Squatting is now a criminal offence, punishable with jail or a fine

Ministers said it would offer better protection for homeowners and "slam shut the door on squatters once and for all". The maximum penalty will be six months in jail, a £5,000 fine, or both. But campaigners warned the new law could criminalise vulnerable people and lead to an increase in rough sleeping. BBC NEWS

("We simply will not allow people to live for free off the assets of others," said the government as yet another £50bn was injected into propping up the housing market.)

OFT launches review of "profiteering" by petrol retailers

Motorists have been offered the hope of cheaper petrol and diesel by the launch of an investigation into the fuel industry. When crude prices rise, so do pump prices. But when crude falls, the pump prices get trimmed at best. TELEGRAPH

("We do our best to smooth out oil price volatility. We start with smoothing out the troughs. Then we stop." said our contact in the petrol retail industry.)

FSA to crack down on incentives for bank sales staff

Report blames recent mis-selling scandals on dysfunctional staff incentive schemes, which fail to offer consumers the best deal. But the FSA has ruled out getting rid of incentive schemes altogether. GUARDIAN
("Calling the products 'Super', 'Super Duper' and 'I'm Rich, I'm Rich' had nothing to do with it," said some idiot at the FSA)

A quarter of people report being ripped-off by lettings agents, says Shelter

Housing charity says high fees and administration charges are the biggest rip-offs. They found cases of renters being charged more than £150 for repeat credit checks each year, which actually cost between £8 and £25 to perform. GUARDIAN

New Barclays chief fears interest-only mortgage scandal
Interest-only mortgages could become the next ‘mis-selling’ scandal, said Anthony Jenkins, potentially costing billions of pounds and engulfing the bank in customer complaints. Mr Jenkins was promoted because of his stunning performance from 2009 to 2012 as Barclays' Head of Retail.  DAILY MAIL
(...where he oversaw the selling of... interest-only mortgages!)

Retailers reeling as High Street and websites suffer Olympic Games slump in August

A dire update from the British Retail Consortium said the net effect of the games was minimal as store chains reported the worst sales growth this year. DAILY MAIL

(Those economists who predicted a 0.7% Olympic boost to the UK economy are now being investigated for being on drugs... performance or otherwise.)

'Big six' energy bosses defend against accusations of profiteering

The boss of British Gas rejected claims of overcharging and restricting competition. Phil Bentley told MPs that the UK had "the lowest gas prices in Europe". However Eurostat figures show this was only true in the first half of 2011, but not the second half. The "Big Six" energy suppliers are suspected of sophisticated financial fiddling to justify high prices. BBC NEWS
("...And sometimes we just hold the graph upside down. Simple, really." said our contact in the industry)

Disabled benefits claimants face £71 a week fines for breaching work plan

Government wants to increase penalties for sick and disabled claimants who fail to adhere to back-to-work agreements. GUARDIAN

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Is the purpose of astronomical executive pay really to avoid losing and to incentivise excellent executives?

Company executives justify their magnificent pay with the ‘global war for talent’. Like so many wars, there are two fronts, one facing the enemy and the other at home:

• Enemy: Compete against other employers to recruit and then hold on to the talent.
• Home: Compete against the employee’s innate indolence, to ensure they work hard, don’t slack, and try their very best.

Two appointments in the summer of 2012 show the futility of using pound coins as shrapnel in this ‘war for talent’:

The first is that of Ross McEwan, who was poached by Royal Bank of Scotland (RBS) from the Commonwealth Bank of Australia (CBA). McEwan took the job of Head of Retail Banking at RBS, which was the same post he held at CBA. According to a report by the Guardian, at CBA McEwan earned

• Salary A$1.25 million
• Bonus A$647,657
• Equal to £1.2million for the year

For ditching CBA and moving to RBS, McEwan was paid a ‘golden hello’ of £3.2 million on top of his undisclosed pay package. RBS claim this £3.2m is what McEwan forfeited by leaving CBA. 

So much for ‘holding on to talent’: CBA’s golden handcuffs turned out to be a very portable pair of golden cufflinks.

The second is Antony Jenkins, CEO of Barclays. We haven't managed to spot what Jenkins was paid in his previous role as Barclays’ Head of Retail Banking. According to a report in the Daily Telegraph “Barclays paid a multi-million pound sum by way of compensation” to Jenkins for not getting the seat on the executive board that had been promised when he joined from Citi, an American bank, in 2005. However his new pay package is reported by the FT to be:

“worth up to £8.6m – a base salary of £1.1m, an annual bonus of up to £2.75m, a long-term incentive plan worth up to £4.4m and a cash allowance of £363,000 in lieu of pension.”

Barclays are smart enough to know the futility of ‘golden handcuffs’. Presumably we see in this generous package Barclays’ attempt to prevent Jenkins from slacking and do his very utmost.

When announcing Jenkins' appointment Sir David Walker, incoming chairman of Barclays, commented:

"The field of short-listed candidates that I met was very strong, and it was clear that Antony was the outstanding choice.”

Some questions needing answers from those who set Jenkins’ pay:

• What do they think he will he do because of the bonus that he couldn't be bothered to do without it?
• If Jenkins outstandingly met the unique qualifications to belong to this tiny talent pool, why didn’t another company snatch him up when he was languishing under Bob Diamond?
• To what degree are his bonus targets rigged to ensure he meets them?

• For example how is it that Stephen Hester, CEO at RBS, had to decline his bonus? What were the targets he had achieved to even have a bonus to decline? Whatever his achievements were that so impressed his remuneration committee, RBS’ shareprice shows they didn’t impress the stockmarket.
• To what degree are these targets subject to the vagaries of the market, rather than the cunning of the CEO?

• If the CEO is so key, then did the Barclays shareprice languish due to Bob Diamond’s professional limitations rather than prevailing market conditions?

What about claims that high pay reflects the responsibility, or providing customers with good service, or bringing success to a company?

Pay is clearly not a matter of ‘responsibility’. If that were so then those responsible for our health, education, and security – nurses, teachers, and cops - would be paid more.

Neither does Customer satisfaction seem to be a driver of high pay policy. In evidence to the Future of Banking Commission in 2010, Jenkins stated that customer satisfaction on his watch at Barclays Retail Banking was 67%, with 33% not satisfied:

DAVID PITT-WATSON Still on the same point, did you say that two thirds of your customers are either satisfied or very satisfied?

ANTONY JENKINS Yes.

DAVID PITT-WATSON And then 1% complain?

ANTONY JENKINS Yes.

DAVID PITT-WATSON That means then that one third of your customers are less than satisfied?

ANTONY JENKINS That’s correct.

DAVID PITT-WATSON That seems a really high number. I can’t imagine how this hotel would function if one third of its customers were less than satisfied.

We presume that this satisfaction level is no worse than the rest of the high street banks – just that high street banks don’t place much value on customer satisfaction. Any more than a mugger worrying about whether his victims like him.

Looking beyond Barclays and at large companies in general, performance seems to be unimportant when setting executive pay. Figures from the USA show:

Sixty companies at the bottom of the Russell 3000 Index in the US lost $769bn in market value in the five years ending 2004 while their boards paid their top five executives at each firm more than $12bn.

These sixty companies paid their top five executives more than US$12billion over five years? That’s on average US$8million a year for being in the bottom 2% of that index!

The fact is excessive pay is the driver of excessive pay. That is the secret to how company remuneration committees (who set top executive pay) provide cover for their bosses. In an article for the Sunday Times Sir Paul Judge, founder of Cambridge University’s business school, said:

“The remuneration committee first agrees with the pay consultants the composition of a group of typically 10 to 20 comparable companies…These typically show a spread of about plus or minus 30% around the average figure.

The remuneration committee then decides where its executive should fit. I have never known of a remuneration committee prepared to declare that its chief executive is below average (they would presumably then have to sack the person). Typically, a committee will pitch the salary at around the upper quartile [top 25%] of the comparator companies. The executive is happy that he or she is well regarded and the committee has used objective evidence.

However, when the pay consultants go through the exercise the following year — using the latest information incorporating increases resulting from companies having placed their executives at the upper quartile — pure arithmetic means the average must have increased. Detailed maths shows that if there is a plus or minus 30% spread and all committees separately agree the upper quartile for their executives then the average will rise by about 15% — exactly what it has done”

 

Using Judge’s estimated 15% annual increase, the effect is to double pay in 5 years, triple in 8 years, and quadruple in 10 years.

Could it be that excessive pay is like excessive use of alcohol? The abuser can’t get the high – in executive terms he doesn’t feel more motivated - by the money he takes. So he takes more? And wonders why he still doesn’t get that buzz?

In the words of Professor Christopher Bones, author of “The Cult of the Leader”:

“There must be a mechanism to restore the relative rewards for senior executives against all other employees to a level that has broad social acceptance. This is not a challenge to politicians to intervene; rather it's an ultimatum to business leaders themselves to change. After all, the only people who can curb the excess for good are those who benefit from it. That would be the real test of leadership.”  

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