Are some bosses actually worth it?

The big problem with British digital technology firms is that they sell out before they go global. Their founders prefer the short-term payoff that comes from absorption into a larger, usually American, group.

They don't think big. Which is why Google, Facebook, and the rest, are based in Silicon Valley, not Silicon Roundabout. One doesn't need to travel very far through the UK business world before one hears this kind of lament.

But people should take a look at Bet365 to see a stunning counterexample.

It was founded only 18 years ago in a Portakabin in Stoke. But with a claimed 35 million customers it's now the world's largest online gambling company. Revenues in 2017-18 hit £ 2.7bn. Mouths gaped open last week at Companies House filings indicating £ 265m remuneration for its chief executive Denise Coates over that period. That's multiples of the pay of bosses of global digital companies such as Apple or eBay.

Indeed, it's just about the largest corporate pay packet on the planet.

I've spent the past few weeks complaining about excessive corporate pay and executive greed, whether on the part of Richard Scudamore or Carlos Ghosn or Jeff Fairburn. Yet I find it hard to get exercised about Coates' remuneration, even though their combined annual rewards don't come close to adding up to hers.

Why? Because the context is profoundly different.

She's more of an entrepreneur than a corporate bureaucrat brought in to run an established businesses, as was the case with Scudamore, Ghosn and Fairburn. Coates founded the company. She took a personal financial risk to do so, borrowing £ 15m from the Royal Bank of Scotland secured on her family's estate of betting shops.

This econometrics student from the University of Sheffield has masterminded the stunningly effective global expansion, spotting gaps in the market, grasping the importance of technological shifts (in particular the rise of mobile phone betting) and executing her strategy with impressive discipline.

If the Coates family want to pay her such sums from their own business as a salary it's more or less up to them, provided, of course, she pays full UK tax on it

Whatever one's view of online gambling and its clear social costs (and it's perfectly reasonable to object to the fact that she was honoured with a CBE, given the industry in which she works), it's hard to deny that she's been a quite extraordinary business leader.

No doubt there was a fair amount of good fortune involved, not least the online gambling bans in the US, China and India which drove traffic to Europe. And other members of her management team and her 4,300 workers surely deserve their share of the credit. But, unlike with Ghosn, Scudamore and Fairburn, it's easier to draw a clear and direct link between the organisation's success and her personal decisions.

But what about the quantum of her pay? Isn't that a neon-illuminated corporate governance scandal? Not really. It's important to bear in mind that Bet365 is not a listed company. Coates owns half the equity and her family most of the rest. It has not taken money from our pension funds. If the Coates family want to pay her such sums from their own business as a salary it's more or less up to them, provided, of course, she pays full UK tax on it.

Yet why, one might wonder, the desire to extract cash from a business she already effectively owns? Isn't this shifting wealth from one pocket to another? The company does not offer a breakdown of where it makes its money and as a private company has no obligation to do so. But analysts estimate that, like many other online betting companies, it operates in "grey markets" - offering services that are currently unregulated by governments but could easily become so in future. If politicians decide to regulate or shut down some of those activities entirely - to make those grey areas black or white - Bet365' s revenue streams could take a hit.

Gambling, due to its inherently addictive nature and often extreme social repercussions, is an industry that's always been vulnerable to government action, as demonstrated by the recent fixed-odds betting terminal rigmarole.

It's a fair bet that Coates recognises that vulnerability. Customers here today may be gone tomorrow. So it makes sense to shift some of her wealth out of her online gambling company and into other less volatile sectors of the economy.

Like all competent bookmakers, the Bet365 founder is diversifying to reduce her risk.

Transparency does help tackle inequality

Two decades ago, as part of the Good Friday peace process, laws were introduced in Northern Ireland requiring local firms with more than 250 employees to publish the breakdown of their staff by religion.

Brexit has raised some bleak clouds over the peace process and the politics of the region have fallen into a slough of dysfunction, but many credit the Fair Employment and Treatment Order of 1998 with helping Northern Ireland overcome a historic and toxic culture of anti-Catholic discrimination.

Over the past 20 years the share of Catholic employees in public and private firms in Northern Ireland has risen. The gap between Catholic and Protestant unemployment rates has also diminished. It's worth considering this successful history as we approach the 4 April deadline for all UK companies of a certain size to report their gender pay gap.

Some are grumbling that these mandatory statistical breakdowns are doing more harm than good.

"Variations in hourly wages or bonuses between men and women are often interpreted - wrongly - as evidence of different pay for the same work," complains Julian Jessop of the Institute of Economic Affairs, a libertarian think tank.

Jessop paints a picture of firms being so unfairly monstered on the basis of such misconceptions that they start outsourcing the jobs of, for instance, low-paid women, in order to avoid them impacting their headline gender gap figures. If Jessop is right, the gender gap reporting requirement could, indirectly, hurt the very people the law is intended to help. But there's little reason to believe he is actually right.

We saw some similar issues of statistical interpretation in relation to the religious employment gap in Northern Ireland.

In 1999, the year after the legislation was introduced, the share of the Catholic workforce was 39.6 per cent. Anyone anticipating a 50-50 split might have concluded this represented a vast level of anti-Catholic discrimination. In fact, the Catholic share of the workforce available for work in that year was 42 per cent.

So the employment gap was real - 2.4 percentage points - and supported the impression of anti-Catholic discrimination. But it was not as high as the naive expectation would have put it.

Rigorous statistical analysis suggests the Northern Irish employment equality situation has improved. The Equality Commission for Northern Ireland reports that in the early 1990s the gap between the Catholic employment share (35 per cent) and the available Catholic labour force share (40 per cent) was 5 percentage points. In 2015 this gap had been whittled down to 1.6 percentage points (with the Catholic employment share rising to 47.9 per cent and the available Catholic workforce to 49.5).

If the people of Northern Ireland have been able to cope with these kinds of statistical adjustments based on firm-by-firm reporting, it seems somewhat pessimistic to fear that the wider UK will be unable to do something similar with regard to the gender pay gap.

The UK government's separate plans to require firms to publish their chief-executive-to-average-worker ratio have elicited similar complaints of the creation of a supposedly dangerously misleading data point.

Some have, like Jessop, issued warnings of the outsourcing of low-paid workers in response to the requirement.

"Pay ratios do not lend themselves to valid comparisons between companies, even within the same industry, and would likely add to misunderstanding over executive pay as well as potentially creating perverse incentives," claims a group called Big Innovation Centre. 

Again, the scent of alarmism is powerful here. Is it really credible to believe that the public will be unable to appreciate the factors that lie behind the differences in the pay ratio between, say, the London arm of a US investment bank, a multinational mining company and a domestic supermarket chain? 

The "single figure" reporting requirement for senior executive remuneration, introduced by the coalition government, has already facilitated much better appreciation on the part of the public, and indeed investors, of the reality of pay at the top of public companies. The roof has not yet fallen in. Indeed, there are some tentative signs of pay at the top of companies being reined in, which may well have something to do with the clarity created by such clear figures.

The historical evidence, then, suggests that when it comes to various dimensions of equality in the workplace, some information is better than no information.

It's true that a company's gender pay gap is a crude metric. Averages, of course, conceal a great deal. But the generally overlooked merit of disclosure is that it can spur other questions. Why is an organisation's gender pay gap high? If it's because there are few women in senior roles, why is that? Many of those companies that have already reported a gap have felt the need to engage with their workforces, to explain the divergence, to set out longer-term plans to deal with it. That's already a benefit.

A mild irony in all this is that libertarian outfits such as the Institute of Economic Affairs are leading the charge against company gender pay reporting, when it was that movement's intellectual godfather, Friedrich Hayek, who wrote so compellingly of the authority of decentralised knowledge - and the merit of allowing people the power to act on it.

Corporate Britain was given one last chance to sort out its executive pay problem and now it's blown it

There was something conspicuously absent from the Government's Green Paper on corporate governance when it was published last November. Four months earlier, Theresa May had proclaimed she wanted to see annual binding shareholder votes on executive pay in order to end the "irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses" and to "make our economy work for everyone".

For all May's crusading rhetoric, this would have been only an incremental reform. Under the existing system, introduced by the Coalition in 2013, all UK-listed firms must already subject their general pay policies to a binding vote at least once every three years. Further, they have to hold an annual advisory vote on actual remuneration packages for directors.

May was, in effect, simply pledging to make those annual advisory votes on pay packages legally binding, meaning if the awards were rejected by shareholders, the directors would be compelled to come up with something else that was acceptable.

Yet, curiously, November's Green Paper - effectively a consultation ahead of legislation - backed away from annual binding shareholder votes on pay, despite the Prime Minister's very clear pledge only months earlier.

The policy, despite being dear to May's heart, seemed, in effect, to have been snuffed out at birth. Why? What changed? The simple answer is lobbying. Consultants, asset managers, accountants and companies themselves had all told ministers it would be a bad idea.

This view was reflected in the report of a group called the Big Innovation Centre which described an annual binding vote as a "disproportionate response" to concerns about executive pay and one that would have "many negative unintended consequences". These acts of self-harm supposedly including frightening off top executive talent from British firms and prompting boards to engage in "excessive consultation" with shareholders ahead of votes.

Ministers must have bought it.

But perhaps the proposal isn't quite dead. For nothing upsets the carefully-laid plans of corporate lobbyists quite like dunderheaded behaviour of their employers.

Last week Crest Nicholson, one of the UK's largest house-building companies, put its executive pay package for 2016 to a shareholder vote. Ahead of the vote, Institutional Shareholder Services (ISS), an advisory body for asset managers, had pointed out that Crest had moved the goalposts for the triggering of bonus awards for its top executives in the most shameless way, proposing to slash its profit growth target from 22 per cent to 8 per cent over just two years.

Crest chief executive, Stephen Stone, was set to receive a share bonus worth £812,000, on top of a salary of £541,158 while chief operating officer, Patrick Bergin, was pencilled in for £562,500, in addition to basic pay of £375,000.

"The profit target has been reduced for the second consecutive year without any compelling rationale, and the revised targets do not appear to be sufficiently stretching," said ISS. This was effectively saying Crest was rigging its own remuneration system to ensure big pay-outs for executives.

Then something that is still pretty unusual happened: shareholders rebelled. Some 77.3m votes were cast in favour of the pay policy. But 107.3m were cast against. Roughly 58 per cent of Crest shareholders rejected the awards.

So how did the board of Crest respond to this comprehensive and humiliating rejection? Did the head of the remuneration committee, in charge of deciding pay policy, instantly fall on his sword? Did the company pledge to scrap the proposed awards without delay and redesign the whole package? Did the chairman bow his head, beg the forgiveness of shareholders and promise a period of deep and serious reflection on the company's priorities? Far from it. Crest declared itself "disappointed" with the way the pay vote had turned out, but said that it would, nevertheless, proceed with paying the bonuses. And why not? After all, this was only an advisory vote. Nothing to get excited about.

May's original pledge was the right one. These pay votes should be annual and legally binding. The practical objections were always weak and ought not to have influenced the Green Paper.

There is also a bigger picture here which Theresa May's July speech rightly alluded to. Consider the damage that shrugged-off shareholder pay protests already inflict today on public confidence in UK business. Simon Walker, the former head of the Institute of Directors, said last year in the wake of two previous major shareholder rebellions that "British boards are now in the last chance saloon". Crest has surely drained the last drop of goodwill.

The corporate governance Green Paper consultation ended on 17 February. Doubtless ministers received even more advice from corporate lobbyists reiterating why the current system is the best of all possible worlds. The events of last week give the lie to that idea.

Theresa May and her Business Secretary Greg Clark should disregard the lobbying and consider the egregious behaviour of Crest. Then they should legislate.