Mon the deflation!!!!!!!

That the total rewards paid to FTSE company directors grew 14% over the past year was as predictable as it was repugnant,so lets have some fun at the scrounging, subsidised bastards’ expense. Yeah, that’s right, according to the right’s own arguments all these FTSE boys are subsidised scroungers.

Here’s how; reading thru some of the details it turns out the bulk of the gains were from “share-based long-term incentives” i.e. if a company’s share price goes up, the execs get the mega moolah. This is terribly lovely until you realise that for years now monetary policy in Britain, in particular quantitative easing, has been geared to boosting asset values. And shares are an asset i.e. a big swodge of the gains executives creamed off this year are hee haw to do with them and plenty to do with a policy the British Chambers of Commerce says, according to CNBC, is debasing the pound!

As for the subsidies, well, lets get realistic for a minute and ignore all the annual report and account bollocks about how such and such a thought-leadership-best-in-class business strategy is delivering real gains; the bulk of the business costs being cut in Britain today are to do with labour be it via redundancies, shorter hours, pay freezes or the closure of pension schemes. Now, what happens when pay gets cut or people laid off? That’s right tax credits and unemployment benefits pick up the strain i.e. the government i.e. us, is subsidising all the supposedly best in class business models all these FTSE douchebags claim they’ve successfully implemented ahead of plan.

Then there’s the very, VERY obvious point, which is in an economy still miles away from trend growth of c. 2.5% a year, if the cash all these execs get goes up 14% a year, they’re getting an even bigger slice of the cake.  So yeah, sure, mebbe the UK GDP dead cat is bouncing for a change, but so what given all of the benefits are getting ripped off by the already very rich; as it stands things work for them, but no-one else or to quote the CBI on recent (below inflation i.e. waaaaay below 14% per annum) pay rises “It's clear that pay restraint is continuing to underpin employment growth. We expect wages to pick up next year, but sustained growth must come first to protect jobs” i.e. we’re all expected to endure yet another year of real terms pay cuts for the greater good whilst the subsidised, scroungers in charge get 14% increases for managing mediocre, subsidised growth.

This brings us to the spectre of deflation currently haunting the Eurozone. Now the mechanics of why deflation is typically regarded as a bad thing are clear enough; if prices fall, then consumers and businesses are wracked by uncertainty and likely to postpone spending e.g. why buy a widget making machine today, when (a) it might be cheaper tomorrow and (b) the widgets it makes will sell for less than you thought when you bought it.

But, speaking as an employee and as a consumer so what? In the current environment one thing I’m certain about is that my pay is set to fall further behind prices i.e. its real value is going to keep falling for the forseeable future so to me a dose of deflation, given it would boost the real value of my pay, is a good thing.

Besides, the arguments against deflation looking pretty weak from my perspective. Like, bearing in mind my marginal propensity to consume is much higher than a FTSE executive’s which is an important thing in the consumer driven UK economy, its not as if I can actually postpone the bulk of my spending given it involves things like food and monthly bills. And as for consumer durables, well, what characterised the NICE decade if it wasn’t ever cheaper, ever higher spec Chinese made goods that people kept buying in spades regardless? So actually, falling prices have a very obvious appeal; but ahhh, this would undermine business confidence and investment and ultimately economic growth – except, so what? Right now, as the 14% FTSE subsidy junkie increase makes abundantly clear, any gains, however teeny, will just be creamed off by a swathe of fat, fat fatty cats whilst me and pretty much everyone else in Britain gets less than hee haw, so feck it, lets have some deflation i.e. the hurtling extent of inequality is such, what is and isn't a good thing for the economy is increasingly a matter of where you sit in the class structure *.

* The bigger point here is the growth in economic inequality and all that entails is, besides being unjustifiable in its own terms, very obviously socially and politically corrosive and, increasingly, a threat to the economy. As for the CBI bod quoted above, every employer, the Tories etc., they really should think about Orwell’s chat about Lenin I think it was; “You can’t make an omelette without breaking eggs.”, “Yes, but where is the omelette?

If I was a rich man

Professor Andrew Lo’s review of 21 books about the financial crisis is a lovely thing in principle; he read them so you don’t have to. Professor Lo also abstracts from the various interpretations kicking around to make some interesting points, or at least tries to in a here’s MY review, oh yes, MY review of things kind of style.

The one that got me because it’s so topical was his footnote 'n’ quote driven dissing of the following notion that he says has “become part of the folk wisdom of the crisis - Wall Street compensation contracts were too focused on short-term trading profits rather than longer-term incentives. Also, there was excessive risk-taking because these CEOs were betting with other people’s money, not their own.”

Instead, Professor Lo responds with “in a recent study of the executive compensation contracts at 95 banks, Fahlenbrach and Stulz (2011) conclude that CEOs’ aggregate stock and option holdings were more than eight times the value of their annual compensation, and the amount of their personal wealth at risk prior to the financial crisis makes it improbable that a rational CEO knew in advance of an impending financial crash, or knowingly engaged in excessively risky behavior (excessive from the shareholders’ perspective, that is). For example, Bank of America CEO Ken Lewis was holding $190 million worth of company stock and options at the end of 2006, which declined in value to $48 million by the end of 2008,5 and Bear Stearns CEO Jimmy Cayne sold his ownership interest in his company—estimated at over $1 billion in 2007—for $61 million in 2008.6 However, in the case of Bear Stearns and Lehman Brothers, Bebchuk, Cohen, and Spamann (2010) have argued that their CEOs cashed out hundreds of millions of dollars of company stock from 2000 to 2008, hence the remaining amount of equity they owned in their respective companies toward the end may not have been sufficiently large to have had an impact on their behavior. Nevertheless, in an extensive empirical study of major banks and broker-dealers before, during, and after the financial crisis, Murphy (2011) concludes that the Wall Street culture of low base salaries and outsized bonuses of cash, stock, and options actually reduces risk-taking incentives”.

Phew. Except, hmmm. No. Actually this is what you call knowing the price of everything and the value of nothing. If I were inclined to do the math(s) or even the arithmetic, I’d note how Ken Lewis’s wodge of stock fell over 74% in value. Ouch. I mean crikey the credit crunch cost him at least $142m. Ouchy, ouch. Over here where executive pay hasn’t yet reached American levels you could do the same kind of thing for the those who ran the subsequently bailed out banks into the credit crunch or at least you could in percentage terms, but absolutes? Nah, they lost millions not tens or hundreds of millions.

The thing is though even after all these terribly important people lost all this dosh (well actually they didn’t cos it was shares they’d have had to sell to get their hands on the moolah), they were and are all still very rich. 1% rich even i.e. the “penalty” for (some of) the people who caused the credit crunch is that they’ve tumbled all the way from fuck me they’re rich to fucking rich or to quote the handy dandy Institute for Fiscal studies online questionnaire about where you are in the distribution of income in the UK - if you were on Mr Goodwin’s pension right now you'd discover “Your income is so high that you lie beyond the far right hand side of the chart”.

Hence, references to “risk-taking incentives” are beside the point; these people simply weren't taking any meaningful economic risks or at least not ones even remotely comparable to say I don’t know the printers currently being asked to vote on a 10 to 20% pay cut. So whereas yer average punter isn't taking the kids on holiday this year and is having to watch the weekly shop like a hawk, for a Ken Lewis all this means is buying 2 rather than 10 new Bentleys.

Instead, rather than an economics of pay, at these levels an open and honest sociology makes far more sense. Some of the obvious stuff this would have to draw attention to would be as follows; every year the charismatic, experienced and successful people (no seriously) that make up the board of yer typical PLC take their CEO aside and tell him that he’s so insightful, strategic and lovely, so best in class and thought leadery that he as a person is worth millions and millions of pounds. Not just one, or two, but millions and millions. And see that corporate jet you wanted? It’s over there. A chauffer? He’ll be round tomorrow morning. And apologies for not asking before, but do you like your grapes peeled or unpeeled?

Now, the notion that such institutionalised, positive-reinforcement didn’t, doesn’t, couldn’t or can’t turn an executive or a trader's or anyone's head is ridiculous. Rather, the way Professor Lo presents Wall Street contracts as a folk-loric contributory factor is a convenient straw man. Sure sure those in charge lost big arithmetically, and? A crucial and key driver of the credit crunch was an arrogant hubris that reached monumentally destructive levels. And this hubris WAS fed by Wall Street contracts (along with those signed in the City of London and elsewhere) that awarded fortunes every year and were primarily set in relation to how rival egos were being similarly massaged.

Personally, I think Sarah Beaney’s Property Ladder telly programme still illustrates this better than however many books on the financial crisis; every episode some dicks bought a house to develop then spent so long fucking it up the rising market meant they still made a profit. Except they actually believed this was due to their great acumen and risk taking endeavours as opposed to fortunate circumstance. So was executive and banker pay a factor? You totally betcha! And no, not because of the absolute amounts at stake, rather it was the relative numbers presented each year on paper and the impact that and the associated rituals had on the egos of key individuals.

Like Ken Lewis, I'm sure, thought he was the dogs and why shouldn't he? Every year he was handed a multi-million pay package and as we all (used to) know people awarded that amount of dosh don't make catastrophic decisions. So sure he had a lot to lose, but does anyone think that when Ken made decisions he seriously took into account the possibility of him actually losing well anything really? Like really?

The other thing are the challenges now being made to it all. Like we’ve been told for however long that the rich need to be rich because then we’re all better off, except no we’re not actually. Or, as is the case here, we get references to “an extensive empirical study of major banks and broker-dealers before, during, and after the financial crisis, Murphy (2011) concludes that the Wall Street culture of low base salaries and outsized bonuses of cash, stock, and options actually reduces risk-taking incentives”. Except no they didn’t i.e. dull stuff like reality makes utterly fucking clear the current system didn’t and doesn’t work as a means of risk management let alone wealth creation for society as a whole.

Rather, Gramsci’s theory of hegemony and how the ruling class defines the common sense of an age is what's increasingly relevant because the "common sense" we've been fed is thankfully and increasingly being questioned in ways that expose it as a pile of self-serving shit.

Being and not being serious about executive pay

My initial criticism of the bollocks being shat about the RBS CEO’s bonus was primarily that it pandered to the media’s dumbing down agenda of reducing everything to personalities an approach personified by the ghastly as he is vain Nick Robinson. It’s also a disingenuous attempt by posturing politicians to pretend they’re doing something, when they actually aren’t. Except they are. At this “historic juncture” I reckon what’s so fucked up is that this bonus furore distracts from more serious (and complex) underlying issues.

So lets start with some facts. Early last year the HSBC CEO got a £5.2m bonus and the Barclays CEO got £6.5m, the latter being famous for stating "(t)here was a period of remorse and apology for banks and I think that period needs to be over". Neither had as fucked up an organisation or as many stakeholders or pressures to deal with as Stephen Hester i.e. Hester is doing a harder job for less money than his immediate peers and even if these other bods waive their bonus this year, they’ll still have oodles in the bank from 2011. Plus there’s also however many dozen more hedge fund managers and traders raking in more than Hester except they’re currently doing their damndest to go Greek on Greece. So is Hester the unacceptable face of an over-paid, if currently state backed, capitalism? Nope.

Despite this Hester getting pilloried in the press allowed some rim-jockey retard on the Guardian website to state he should only get paid as much as a primary school headteacher, a primary school and a global financial conglomerate employing >100,000 people being apparently interchangeable institutions. Alternatively, such fucktardness illustrates the level of debate underway, one that ignores dull stuff like Hester could walk into an easier job tomorrow that pays him as much or more than he’s getting and do so whilst being widely regarded by his peers as the victim of a witchhunt. It also ignores even duller stuff like the RBS share price and credit rating would get humped due to the management upheaveal this would cause and the resultant perception of political interference i.e. the posturing going on right now would cost the taxpayer a damn sight more than Hester’s bonus.

Really what the above illustrates is how fucked up politicians have deliberately made things. The issue IS NOT should Hester get a million pound bonus, instead it’s whether the system that sets executive pay is working and to a lesser extent is Hester the right person for the RBS job. The second of these is easy to answer; given the RBS board and UKFI both seem happy with him, yes he is. The first part is the far more complex problem, because no it isn’t working and is in fact a growing social problem, but one no major politician appears willing to seriously address.

Rather, to get a sense of scale about what's going on you need to read the Bank of England Governor Mervyn King’s comments from the other day: “Above all else, we must strive to maintain support for a market economy and an open world trading system. They provided the basis for the great prosperity experienced since the Second World War. The tragedy of the financial crisis is that those who have suffered most have been those who bear no responsibility for it, and who, whether employees or businesses, accepted the disciplines of a market economy only to find that others were excused that discipline because they were “too important to fail”. But the legitimacy of a market economy will inevitably be challenged if rewards go disproportionately to a small elite, especially one which benefited from the support of taxpayers. Those taking decisions on remuneration, in the financial sector and elsewhere, need to understand that a market economy rests not just on incentives, but on the acceptance that the distribution of rewards is fair. That sense of fairness underpins the commitment to a market economy” i.e. the basic legitimacy of Western capitalism is being called into question.

Crikey, them’s big potatoes. And the political response so far? Wouldn’t it be nice if things were a bit more John Lewisy and that RBS bloke shouldn’t get a bonus should he.

What this leaves us with is a seemingly untouchable economic elite intent on remaining just that thank you very much and a professional political class too removed, too ignorant and too power-obsessed to appreciate let alone articulate a growing degree of discontent and disenchantment that can only grow as public sector spending cuts persist, high unemployment continues and yer average punter finds inflation is still eating away his or her disposable income, albeit at a slower rate, in an economy where you can no longer borrow cheaply enough to paper over the cracks.

Slightly smaller potatoes would be changing the principles used to set executive pay given the current ones continue to generate economic inequality (not just, as Vincey-tit is largely suggesting, tweaking how the existing participants participate). Are politicians likely to do this I wonder? To give some random examples Tony Blair of JP Morgan and Zurich Financial Services, Norman Lamont, a consultant and advisor to various investment funds, Lord Andrew Turnbull, the former head of the UK civil service who chairs the hedge fund BH Global, or Patricia Hewitt, the former health secretary and an advisor to Cinven, the private equity house that bought BUPA, all seem perfectly placed to help here given their vast experience of both government and business.

In the meantime I reckon the decision of our lawmakers to moan about an individual outcome of a broader system rather than changing the system is already inane to the point of being counter-productive. I mean at least yer old skool Tory knew that to keep taking the piss out us plebs you had to give a little and not do it so fucking obviously.

So in the absence of any meaningful paternalistic gestures here are a couple of suggestions to start the ball rolling. First, draw out the practical lessons from Andy Haldane’s analysis of finance sector pay, most obviously the linkage between it and ROE, and start drawing up regulations that apply them as widely as possible. Also, control for company size in setting executive pay more generally so rewards reflect actual performance.

Second, change the law so that companies can only have one redundancy policy i.e. no more individually negotiated employment contracts for senior and or high earner bods that contain golden parachutes. I’m quite proud of this one cos I thunk it up by myself. Obviously, compromise agreements would be a way round it, so all compromise agreements involving over say £100k should be subject to independent audit to ensure they’re “real” rather than attempts to get round any one size fits all policies.

There. And see what I did with the random examples? Did you? Yeah that's right I was illustrating how cunt professional politicians have a very practical vested interest in preserving the status quo.

Grrr! Executive pay. Grrrr!

The thing that’s so cool about Sir Shred is how him being such a cunt lets dicksplash politicians pretend they're actually doing something by going on about how ghastly he is, being seen to be doing something being the raison d’etre of the political class. Even better doing so personalises what is a global macroeconomic crisis in line with the mainstream news's fixation with personalities as opposed to dull Reithian crud like educating and informing.

You'd have thought though that the obvious political lesson of the Sir Shred pension debacle was that as politicians couldn’t do anything about it, they should've shut the fuck up and instead concentrated on things they actually could influence. Except that was/is too hard. So instead they chose to avoid dull stuff like ensuring a proper enquiry was held into RBS complete with proper investigations so as to ensure the cunt was legally hung out to dry.

Unfortunately, personality politics clearly remains too appealling, so rather than anything that's actually serious we're still left with politicians a) identifying a specifc individual to be demonised, then b) going on and on about his cash so as to distract from the vacuity of taking such a “political” stance as opposed to doing or coming up with anything that actually matters a fuck. Hence we've Ed Miliband trying to outdo Esther Rantzen as a consumer champion by stating “David Cameron should act to stop Stephen Hester (the current RBS CEO) being paid a bonus of this scale” and Vince – the tit – Cable rolling out a raft of bollocks to supposedly curb executive excess.

Now before going any further it’s worth being clear about Stephen Hester the man who inherited Sir Shred’s utter fucking disaster. See the important bit there? That's right, Stephen Hester had fuck all to do with creating the RBS disaster and is working through it to make as much money as he can for the taxpayer. Some of the chat I’ve also heard is that he doesn’t like financing aircraft largely on point of principle, but that aside he didn’t cause the RBS catastrophe. In fact I mind hearing him, when he was still British Land's CEO, speaking at a property investment shindig a few years back. There, in my view, he provided a superbly realistic and succinct assessment of the UK commercial property market’s prospects. By contrast at the same conference useless auld Martin Wolf’s economic commentary dismissed the then emerging sub-prime crisis as something very unlikely to affect the global economy (the irony here being Martin Wolf subsequently sat on the ICB, whose recommendations RBS is now in the process of implementing). But, in politico land that kind of practical shite doesn’t matter. Much better to go on and on and on (and on) about fat cat banker bonuses etc., and how they shouldn’t be paid.

Except, actually howz about these apples instead, like howzabout a review of current tax arrangements with a view to using the tax system to address the growth seen in economic inequality over the past few years cos that kidna works elsewhere? You know, howzabout mad shit like looking at current taxes on wealth including all capital gains as opposed to how much people earn. Mebbe we could consider introducing differentiated taxes on consumption that take into account the nature and price of the good (relative to comparable items) being bought, like say 5% extra on an Aston martin as opposed to a Kia. And can we really go for tax “efficient” individuals and corporations, like REALLY go for them regardless of how many good lunches they take tax inspectors out for.

There you go. Oops, sorry, that’s too complicated isn’t it? Sorry. Much better to posture like Ed Miliband or come out with utter shite like Vincey boy who’s just issued the following on executive pay:

“Measures proposed include:
• making firms' remuneration reports easier to understand, and requiring them to explain executive salaries in relation to the earnings of other employees (Piece of piss really, “it’s a global market for labour at that level and don’t you know Americans earn far more for doing similar jobs” ya de ya de yada for christ sake please ignore nation specific differentials in top CEO pay)

• increasing transparency by requiring the publication of all directors' salaries (And? No seriously, fucking and?)

• giving shareholders a binding vote on executive pay, notice periods and exit packages - at present their say is merely advisory (as many people have already said asking fund managers to interfere in shit like that is like asking crafty turkeys to vote for Christmas. They won’t and don’t give a fuck anyway cos its only ever a tiny % of a company's revenues/cashflow. Plus they've largely bought into the CEO cult of personality shite so are only bothered with who the CEO is not what he’s paid. As for the Cairn chat, please bear in mind exceptions prove rules, single swallows don't make summers, etc.,)

• encouraging a wider range of people onto company boards, including academics, lawyers, public servants and those who have never served on a board before (Hearing shite like this reminds me of that story about Volkswagon and how they set up a slush fund to provide the trade union reps who sat on company boards with free whores, shopping trips and Viagra. Or rather than buying people off you could simply appoint token idiots. Cetainly, Jeffrey Sachs doesn't appear to impressed with Dambisa Moyo the black woman on the Barclays board)

• requiring all companies to introduce "clawback" policies, allowing them to recoup bonuses in cases where they are later shown to be unwarranted (nah, fair dos that is a goody)”

So yeah, the bollocks we’ve got at the moment is written in wholly cretinous terms as dictated by the media. It doesn’t address fundamental issues like the morality of how the people that fucked shit up for the rest of us are still doing very-OK right now thank you very much and it appears when confronted with shit like the growing disparity of wealth (wealth being different to income), the only response we get is don't pay him a big bonus, don't pay hin a big bonus i.e. a focus on incomes and contractual stuff that can't actually be touched as the Daily Mash spelled out superbly today in a manner I'm guessing is already influencing broadsheet commentary on the stupidity of what's being said.

Like when you think about it you start wondering whether all politicians, either through chance or design, are actually in a give-me-a-highly-paid role-as-a-senior advisor-when-I-leave-parliament cahoots with the cunts intent on fucking us all. I mean the "analysis" and crud being spewed right now is so wide of the mark in its stupidity its got poor sods like me actually presenting what could be construed as partial defences of multi-million pound banker pay packages its that bad.

In the meantime back at the Daily Mash you've got the statement they made about Ed Miliband being a “fucking child” and are left wondering how broadly applicable that is when it comes to assessing the political class’s grasp of what’s actually going on.

Like to give a serious example, why the fuck has Andy Haldane’s utter destruction of using ROE as a measure of bank executive performance no even got a mention yet by any mainstream politicians? Or more broadly should the longstanding association between executive pay and company size i.e. the bigger the company the bigger the wage regardless almost of performance, not be controlled for when setting exec pay? Oops that's too complicated isn't it. Sorry 2x.

How to win the class war

The key to successful class rule is that to its subjects it feels effortless, painless and natural. So ideally then it should be conducted by charming and charismatic people, something Stewart Lee's recent routine about him and David Cameron at Oxford University* captures beautifully. Unfortunately, every so often some upper/ruling class numpty comes along and gives the game away.

And so it was with Dr Heather McGregor. I'd never heard of her before, but if you go here you'll hear her trying to defend the thousand-thousand percent increase in executive pay as exposed by the High Pay Commission. For McGregor the argument is something like having staff sit as pension trustees equals worker representation and anyway if you wanted a workers' co-operative you should go to Cuba. So that'll be artifically imposing a false dichotomy then to distract from what most people want, which is (a) not to have the pish ripped and (b) some real linkages made between performance and reward.

If you go here though, you realise Dr McGregor is (a) upper class and (b) a fucktard whose given the game away.

"Here" refers to the speech she gave to Rodean school in 2009, Rodean being the female equivalent of the Eton school*, which she presumably attended and where and I quote - "She advised the girls, ‘Leave with this sentence tattooed on your head: “I can’t do it alone”. What is very important is to reach back and pull up the people behind you – and especially the people you were at school with’.

So that's alright then. Democracy? Meritocracy? Equality of opportunity? Fair play even? Nope, for this executive head hunter i.e. one of the people that helps identify the UK PLC CEOs that've been the getting muti-thousand percent pay rises, its old school ties and old school chums all the mutha-fuckin way. Bit of an own goal that.


* S'funny. Writing this I originally referred simply to Oxford, Rodean and Eton because those ruling class making machines are so engrained in our national pysche there's no need to state the type of institutions they "actually" are. Naturally.