The L’Oréal defence on executive pay won’t wash with the unions
Caveat: Executive paychecks a multiple of average ‘because they are worth it’
FBD chief executive Fiona Muldoon: doubled her pay packet to just under €900,000. Yet FBD’s share price only rose by 4.4 per cent over the period for which that pay packet applied. Photograph: Eric Luke
The infamous, so-called L’Oréal Defence – “because we’re worth it” – is routinely deployed by everybody from company chief executives to nurses and teachers, whenever conversation turns to what they should be paid. L’Oréal suits all hair types, don’t you know. It doesn’t just work on elites.
The Irish Congress of Trade Unions (Ictu) borrowed the maxim this week as the title for its annual report on executive pay in Ireland. It showed that the gap between what an average worker is paid (€37,000) and the pay of most of the chief executives of the 27 listed Irish companies surveyed (based on their 2016 results) is widening.
At a handful of companies – DCC, Tullow Oil, Kerry – the pay packets of the chief executive were more than 100 times an average Irish worker. At CRH, Albert Manifold’s pay ballooned to 270 times from an already stratospheric 151, albeit the 2016 figure was skewed by a bonus payment set three years previously.
On the surface, at least, the messaging from the trade union umbrella group’s report was clear: Irish chief executives, it suggested, are paid too much. They’re certainly paid an awful lot. But are they actually worth it?
That depends on the company. Manifold, for example, took home a total of almost €10 million in 2016, which was almost double the 2015 pay for the CRH chief executive. “When shareholders do well, I do well,” Manifold declared at its agm last year, in response to questions about his Herculean pay packet.
And, it is true, in 2016 CRH shareholders did well. The dividend was hiked to 65 cent per share. Sales rose 15 per cent, profits after tax by 75 per cent. The share price over the year rose by about a quarter. Manifold is as rich as Croesus. But when he tousles his hair in the mirror in the morning, he can probably declare to himself that he’s worth it.
Elsewhere, it is less clear-cut.
Fiona Muldoon, chief executive of insurance company FBD, doubled her pay packet to just under €900,000, a mid-range salary on the Irish stock exchange. Yet FBD’s share price only rose by 4.4 per cent over the period for which that pay packet applied.
It is true, of course, that share price is just one indicator of the performance of a company. In 2016, Muldoon led an overhaul of FBD’s distribution, cutting out brokers and returning it to profit. And since the beginning of 2017, FBD’s share price has risen by a further 45 per cent.
Muldoon will argue she too is worth it. And that will likely be reflected in her pay set by FBD’s remuneration committee, when it is revealed in the 2017 annual report this spring. Just don’t expect motorists facing another year of crippling premium hikes to thank her for it. But Muldoon doesn’t work for them. She works for FBD.
One company to feel the heat over its 2016 executive pay was hotel group Dalata, where the chairman was forced to launch a defence of founder and chief executive Pat McCann’s pay following its agm. The group’s share price fell by close to one-fifth while his pay rose by 78 per cent to €1.5 million.
But isn’t McCann still worth it? Dalata only exists because he put it together. And his timing building up the company from recessionary origins to where it now has a stranglehold on the Dublin market – at a time when hotels are at full capacity – was impeccable. McCann will be well-rewarded whenever he checks out. But so will shareholders.
Ryanair’s Michael O’Leary is another of those chief executives who pretty much built the company. Its 2016 financial year ended in March but, over that period, its share price rose about 30 per cent, the same as his pay packet, which stood at €3.2 million.
In 2017, it was flat, again like its share price, although that conceals the effects of its summer pilot roster crisis and its Ryanair’s volte-face on trade union recognition.
Being Ryanair and O’Leary, however, there is always a little bombast. Its 2016 annual report says his pay is “low” in comparison to other listed Irish companies. It is not. That year, only five of the 26 other listed companies researched for the Ictu report recorded chief executive pay packets larger than O’Leary’s.
And given the operational disaster Ryanair endured in recent months (part of its 2018 financial year), can we expect his next pay packet to be hammered in line with the airline’s reputation?
Spats over executive pay are much more common in the UK than in Ireland. They’re chippier over there, and they take their corporate governance much more seriously. But there are signs things may be changing here. There have in recent years been mini-shareholder votes expressing disapproval regarding aspects of executive pay at Irish companies from Ryanair to C&C to CRH, and Irish Continental Group to Kingspan. And most of those companies have tweaked their structures in response.
Ireland still remains way behind on its tolerance of other corporate governance matters, however, such as board composition and independence, which is a disgrace in many Irish-listed entities. That sort of tolerance, when the reckoning inevitably comes for those companies, definitely will not be worth it.
Wages of clothes workers in Asia
The excellent results at Penneys/Primark this week, where sales rose 7 per cent over the festive period, means the retailer is unlikely to be quaking in its boots at the thought of the fresh competition posed by Dealz, which is rolling out discount clothing offering with its Pep&Co.
Dealz plans to open Pep&Co departments in 30 of its Irish stores by the summer, with jeans for €6.50 and kids’ items beginning at €1.50. But who pays the real cost when there is a discount clothing war?
Like Primark, Dealz is sourcing its cut-price clobber in Asia, where working conditions can be gruelling, and sometimes dangerous. About 1,100 workers at a building housing one of Primark’s suppliers were killed in 2013 when the factory collapsed, exposing the retailer to fierce criticism of its supply chain in the face of such a devastating human cost.
If jeans are sold in Ireland for €6.50, can the conditions of the impoverished workers who made them really be up to scratch? Dealz says its policies are “ethical”. But so, too, did Primark, until the roof came in on its supplier in Rana Plaza in Bangladesh.
Of course, you can also turn the issue around. If those workers (mostly women) weren’t sewing together cheap clothes for western retailers, wouldn’t they be even more impoverished than they are now?
Trade union leaders’ pay far exceeds that of members
While the trade unions can ask whether bosses’ pay is worth it, trade union members could also ask the same of the union leaders. Most leaders of large Irish trade unions are paid between €110,000 and €150,000, multiples of their members’ salaries. Not that you’d know this all too easily if you visit their websites in search of their annual reports (which are always front and centre on plc websites).
Transparency on pay works both ways.