A few days ago we received in the post the voting information for the AGM of the Nationwide, with whom we have a mortgage and of whom we are therefore members. The resolutions we are asked to vote on are very simple: we are asked to approve the accounts, approve the directors’ remuneration, and approve the appointment of the auditors. Then we are asked to elect or re-elect a whole bunch of people as directors.
I can only go on the information they’ve given about the accounts, but I have no reason to believe there’s anything wrong with them, so I’m happy to approve them. And I’m fine with the auditor, and (apart from the fact that there’s a woeful shortage of people who aren’t white males on the list) ok with the directors too. But I have a real problem with the directors’ remuneration.
The total proposed payment in 2011 to the six executive directors is £6,633,000. The top director gets £1,884,000, of which £650,000 is the base salary and most of the rest is bonuses; none of the directors get less than £850,000. The report says that this follows the principle of setting the directors’ base salaries ‘at around the market median’. It says it recognises that the base salary ‘has fallen significantly behind the market over time, and that this position is unsustainable from a competitive perspective’.
I couldn’t disagree more. From the point of view of the general economy, it’s the huge salaries for directors that are unsustainable.
Now, to be fair, the report does seem to be saying that the base salaries have not increased for two years, that Nationwide have had a good year which proves that the directors are doing well and should be rewarded, and that they are reducing the proportion of directors’ pay that comes from bonuses. But my objection is to the entire principle of the way their pay is decided.
The pay principles of the Nationwide say ‘There will be a clear link between performance and remuneration’. But there is mounting evidence that high levels of pay, and pay linked to performance, not only do not result in better work but actually tend to encourage worse performance.
They pay principles of the Nationwide say ‘Pay will support the attraction and retention of high quality people’. But this assumes that high-quality people (a) are motivated only by money, and (b) are in very short supply. I suspect that there are far more people in existence who could do the job of an executive director reasonably well than there are such jobs available, so you really don’t need to offer huge wages to get someone who is good enough – maybe not the best available, but you really don’t need the very best, just someone who can do the job. Besides, I think that really good workers work for more reasons than just their wages – loyalty and commitment and the desire to do a good job for the pure sake of it can’t be bought so easily. Which is not to say that they shouldn’t be paid a decent wage; just that the link between pay and performance is not linear (and people aren’t generally any happier for having more money, once they have enough to not worry about it).
The pay principles of the Nationwide say ‘The incentive opportunity at Nationwide will not “lead the market” ‘. (By which I think they mean that they won’t pay bigger bonuses than anyone else.) But I think that’s exactly what it should be doing: leading the market – downwards. If someone doesn’t make a stand, pay rates will keep spiralling, and who better than the Nationwide, a mutual building society owned by its customers, to have the courage to lead?