Azure Global : 11/11/13

Monday 11 November 2013

RBS chairman reveals employee lobbying over banker bonuses

Sir Philip Hampton describes 'out of body experience' over one banker's complaint about £4m payout

The chairman of Royal Bank of Scotland described on Monday how he felt like he was having an "out of body experience" when a banker protested to him that his £4m pay deal was unfair.

In a rare insight into the pressure top employees try to put on boards over their pay levels, Sir Philip Hampton said he had been contacted "quite a lot" by bankers wanting bigger pay deals via email and in face to face meetings.

Since becoming chairman of RBS after its £45bn bailout five years ago – it is now 81% owned by the taxpayer – Hampton has had to fend off repeated criticism of the bonuses paid to investment bankers and to former chief executive Stephen Hester. But the 60-year-old admitted to being surprised by the demands made by some staff.

"I can tell you I've had some completely out of body experiences in recent years where I was talking to somebody about potentially getting a £4m pay package. And outrage coming across the table from the other side because they know that somebody doing a comparable job at another bank is getting £6m. This is absolutely outrageous to them, that somebody is getting 50% more," he said.

Speaking at a debate in London organised by the High Pay Centre, the Freidrich Ebert Stiftung foundation and the Guardian, Hampton did not name the banker who had been disappointed by the £4m deal. On an intellectual basis he could understand the argument, he said, if not the feeling about the size of the payment.

It illustrated "part of the different world that can be inhabited", said Hampton, who attends meetings of the remuneration committee but does not have a formal seat on the board committee that sets pay. He receives £750,000 a year.

Hampton, who started his career as an investment banker at Lazard and became finance director of British Steel in the mid 1990s, said that in banking, expectations of bonuses had become "deeply embedded".

He said it was part of banking culture to work for your bonus, but considered that the power of bonuses to motivate staff was "overrated". However, he did not oppose bonuses as a way to pay staff because they were effective in aligning them with shareholders – especially as payouts could be clawed back if performance turned out not to be as good as it first seemed.

In 2012, he said, bonuses in the investment bank were 80% lower and the top 10,000 staff did not get pay rises.

The culture of bonuses being paid regardless of performance led to the EU capping them at a single multiple of salary – or twice with the approval of shareholders. The government is challenging the bonus cap, which regulators fear could push up fixed salaries. Barclays has been discussing the possibility of handing its bankers an allowance to make up for lost bonuses and Hampton would not disclose RBS's proposals for pay once the cap comes into force on 1 January.

"There will probably be some inflation of base pay," Hampton said. But, he warned, the impact could be to increase fixed costs for the bank. Some aspects of bonuses had encouraged unwanted behaviour, he said, citing incentives to sell payment protection insurance that have left the industry with a £20bn bill to compensate customers. "It is absolutely possible to have incentives that are disastrous. That was the case with PPI."

Article Source : http://www.guardian.co.uk
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Blockbuster and Barratts enter administration, threatening 3,000 jobs

Film rental chain's brief revival under Gordon Brothers withers, while shoe retailer failed to attract £5m investment needed

More than 3,000 retail jobs are at risk just weeks before Christmas as the film rental chain Blockbuster and shoe shop Barratts announced they were going into administration.

Both retailers have failed before. Blockbuster was among a string of well-known high-street brands to go bust at the beginning of the year, while it is the third time Barratts has fallen into administration in less than five years.

There were also further job losses at regional airline Flybe, which said it was cutting 500 jobs in an attempt to save £26m a year, having struggled in a downturn that disproportionately affected economies outside London.

The retail collapses reflect ongoing troubles in the economy as inflation has continued to outstrip low wage increases, whittling down consumers' spare cash. This year has seen the failure of a string of retail casualties, including music retailer HMV, Jessops camera shops and bed specialist Dreams, all of which were later rescued by buyers who took on at least some of the stores and employees.

But both Barratts and Blockbuster face an uphill struggle to survive after falling out of step with the fast-changing habits of shoppers.

"Consumers and the retail market have moved on," said Maureen Hinton, research director at retail analysis firm Verdict. "The economic downturn has only speeded up the exit of weaker players that would have found it difficult anyway."

She said the Barratts brand and its products were not strong enough to compete with clothing retailers such as Primark, New Look and the supermarkets, which now sell footwear as well as clothing. Blockbuster, meanwhile, is based on an "outdated concept" that has been overtaken by downloads and TV subscription services.

Philip Duffy and David Whitehouse of Duff & Phelps, joint administrators for Barratts, said they hoped to sell the business as a going concern but that store closures and redundancies could not be ruled out.

Barratts, which employs 1,035 people at 75 stores and 23 concessions in the UK and Ireland, had sought additional investment after a period of difficult trading but the offer of a £5m cash injection was withdrawn on 7 November.

"In view of the financial position of the company and withdrawal of that equity offer the directors were left with no choice but to appoint administators," said Duffy.

The appointment of administrators at Blockbuster comes just a month after the retailer's owner, Gordon Brothers, admitted that its turnaround strategy had not worked because of a rapid switch to renting films online or via TV subscription services.

The restructuring specialist bought about half of Blockbuster's original UK chain in March and promised to invest substantial sums in a revival plan to protect around 2,000 jobs. But Gordon Brothers was unable to secure a licensing deal with Blockbuster's parent company in the US, which also recently filed for bankruptcy, to launch an online business.

Nick O'Reilly, a joint administrator, said: "Gordon Brothers found the marketplace had changed quite dramatically. A lot of people want to rent online, while the price of DVDs on places like Amazon is so cheap – why rent for £3?"

Blockbuster's 264 stores will remain open while the administrator, Moorfields Corporate Recovery, looks for a buyer. But O'Reilly admitted it would be a tough job to find a new owner for Blockbuster in its current form given that Gordon Brothers had already spent weeks seeking a buyer.

Joint administrator Simon Thomas said: "This is obviously a difficult and upsetting time for everyone involved at Blockbuster, in particular employees, who have endured a stressful period since January this year."

"We appreciate that staff and customers will want a speedy resolution, however, we must ask people to be patient over the coming weeks."

Flybe had already cut 490 jobs under its previous boss. Its new chief executive, Saad Hammad, said it had been clear the cost savings were necessary, but the company needed to do more and do it immediately.

He said jobs would go "across the ranks: pilots, cabin crew, engineers management. It's unfortunate it needs to be done to be relevant and viable. We've got to secure the business – it's the lesser of two evils."

The Unite union said it would scrutinise the business plan to limit job cuts. National officer Oliver Richardson said: "Cabin crew have already been through one major reorganisation at Flybe only recently and they will be angry that once again they are on the front line of more cuts.

"Over the coming weeks, the union will scrutinise every inch of the company's business plans in order to protect as many jobs as possible and to avoid compulsory redundancies."

University economics teaching to be overhauled

Move follows criticism over 'limited and outdated' curriculum and failure to include how financial markets can undermine stability

An overhaul of university economics teaching will begin next year in answer to critics who argue that economists failed to spot the 2008 crash because they ignored the impact of financial markets and relied on outdated theories.

A new first year curriculum will be available from the start of the 2014 academic year which will include an in-depth review of economic history and a look at the way financial markets can undermine economic stability.

Wendy Carlin, an economics professor at University College London, who heads the project, said several universities had expressed an interest in adopting the new curriculum, including Sydney, Warwick and UCL.

Speaking at a conference hosted by the Treasury, Carlin said students needed to debate conflicting theories of how economies work and understand that while markets often are successful, they sometimes fail.

She said some academics argued that reforms should take the form of "nicer, smarter, cooler examples of the real world", but a more fiundamental overhaul was needed to give students a deeper and broader understanding of the subject.

Much of the syllabus is being written by academics and economic consultants on a voluntary basis with technical support from Azim Premji University in Bangalore. The course materials, plus supporting teaching materials, will be available at "no cost to participating institutions".

The project, which was launched last month, is backed by the New York-based Institute for New Economic Thinking, which was created in 2009 with financial backing from the financier George Soros.

Some academics have argued that economics has become locked in a time warp, teaching theories that ignore the advent of the internet, the end of the Cold War and the threat of climate change.

Juliet Schor, a professor from Boston College said economics teaching needed to illustrate how a rise in fossil fuel consumption can cause damage to others thousands of miles away. "Humans share a biosphere and it is possible for people to cause huge harm to others on the other side of the world, she said, adding: "We should include environmental and carbon footprint accounting alongside GDP."

An element of environmental economics is included in the new curriculum.

But Carlin refused to answer concerns that the project will be of limited use unless some of the largest universities adopt the new scheme.

There are fears that the dominance of mathematical modelling in the current economics syllabus will be defended by senior figures in academia because it supports candidates who want to make a career in banking and finance.

Students at Manchester University, who formed the post crash economics society earlier this year, have complained that their course is dominated by mathematical modelling based on out-dated theories.

Professor Michael Joffe, an economist at Imperial College, said space could be made in the curriculum if academics could admit that many theories were "plain wrong" and should not be taught.

Co-op replaces £8m Christmas dividend with food vouchers

Organisation says half-year payments to members unjustifiable in light of near collapse of banking arm

The Co-op has unveiled a new rewards scheme after being forced to abandon its usual pre-Christmas dividend for seven million members.

The UK's biggest mutual organisation told delegates at a meeting in Manchester on Saturday that £8m in half-year payments to members could not be justified in light of the near-collapse of its banking arm.

The full-year dividend, which last time amounted to more than £100m, is likely to go the same way after the group made a loss of £559m in the first six months of 2013. A final decision will be made early next year.

Chairman Len Wardle said at the group's half-year meeting: "Our decision not to pay an interim dividend was not one that was taken lightly. But it was viewed by the board as a necessary one, given the challenges facing the group at this time."

The Co-op has announced details of a separate rewards scheme that will see members offered 10% vouchers that can be saved and used as a cash equivalent in the group's 2,800 food stores before Christmas Eve.

If a Co-operative member spends £30 they will be given a voucher worth £3. Vouchers can be collected between 18 November and 15 December.
Chief executive Euan Sutherland said: "Technology now allows us to offer these more immediate rewards, which we are confident our members will appreciate in the run-up to festive period."

The Sunday Times said that a review of the Co-op's donations to the Labour party will form part of a strategy rethink being undertaken by Sutherland as he also attempts to reduce the group's £1.3bn debt pile.

He said in an interview with the Sunday Times: "Part of our strategy work, and we will come back with it next May, is to ask, where and how should the Co-op movement be contributing to local society and to community movements?"

He added: "Being a mutual is not an excuse for not making money. My intention is to make decent profit out of the Co-operative Group. What we then do with that profit is different."

The Co-op bank's rescue plan announced last week will see around 50 branches close and bond investors including US hedge funds given 70% of the business, leaving the parent Co-operative Group with a 30% stake.The controversial move comes after a £1.5bngap in finances was discovered following the purchase of the Britannia Building Society and abortive plans to buy hundreds of Lloyds branches.

The Co-op business also includes supermarkets, pharmacies and a chain of funeral parlours.