I have always had a soft spot for building societies.
Maybe it’s because I worked for one in the 1980s as an economist. Bristol & West it was called, and long since gone to the cemetery for building societies (not many plots left). Lovely departmental boss, no work pressure and little economic analysis required.
But it is more than a former work bond that draws me to these financial mutuals. More than 20 years of personal finance reporting have made me realise that most building societies strive to do more good than harm.
They try and look after their customers – be they savers or borrowers. Some such as Nationwide, the biggest by far, even reward customer loyalty. It’s an unusual trait in a financial services industry where new business is king and loyalty is usually ‘rewarded’ with pathetic savings rates and higher insurance premiums.
Yet these cuddly mutuals are not without blemish. The financial crisis of the mid-2000s blew many of them away as their decision to diversify into risky areas such as commercial lending backfired spectacularly.
Dunfermline was probably the biggest failure although other ailing societies were only saved by white knights such as Nationwide and Yorkshire which swept them up in the interests of maintaining the industry’s integrity and trust. Britannia, a basket case, was ‘merged’ with Co-operative Bank, a merger made in hell rather than in heaven. Loss-making Co-op Bank – carrying on the basket case mantle – now looks as if it is going to be swept up by Virgin Money.
Although most of the remaining 44 societies (there were 60 going into the financial crisis and more than 1,000 in 1930) are simple businesses, primarily attracting money in to lend to home buyers, their bosses and boards like to think otherwise.
Despite them espousing the mutual ethic at every opportunity, it does not extend to boardroom remuneration. Executive excess is as much a feature of building societies as it is of some of our most iconic financial brands. It just escapes the attention of the financial media.
I am the exception to the rule. Unlike most personal finance journalists, I quite like trawling through building society annual accounts and scrutinising how much the bosses are being paid. I am never anything but surprised – and a little outraged – at what I discover.
Not content with pay packets that keep them, their families and servants (housemaids, gardeners and chauffeurs) in a lifestyle most of us can only dream of, the chief executives of these organisations now receive a mishmash of bonuses. Rewards that can nearly double their remuneration.
Mutual in theory. Raging capitalism in practice. Fair? Not I would say if you are a customer receiving a paltry rate of interest on your cash savings.
In the last few days, I have dug out the latest report and accounts for the biggest societies that have reported 2016 results. All bar Nationwide, which has a later year end, have published accounts.
Examination of the directors’ remuneration reports has made my hair curl.
Take Leeds, the country’s fifth largest society. Its boss Peter Hill saw his remuneration jump by just over 12 per cent in 2016 – from £649,000 to £728,000. Part of this was in the form of a £252,000 annual bonus as a result of his ‘personal performance’, ‘corporate measures’ and ‘peer group assessment’ (the society’s words).
‘Growing with you’ is the society’s mantra. How appropriate, given Hill’s growing remuneration. Why not just spell it out: ‘Hill’s remuneration, growing with you.’
But Hill’s inflation busting hike in remuneration is not the largest. Skipton’s David Cutter saw his overall financial package rise 19.4 per cent to £831,000, inflated by a £161,000 annual performance bonus and a £157,000 payment from the medium term incentive scheme. Skipton is the country’s fourth largest society.
But it is Coventry’s Mark Parsons who won the equivalent of the society chief executive lottery in 2016. His overall remuneration jumped 50 per cent to £970,000, an increase fuelled by a coming together of ‘annual success share bonus’ (£69,000), ‘executive variable pay plan’ (£194,000) and ‘legacy long term incentive plan’ (£96,000). No wonder he jumped at the chance to leave Barclays in 2014 to head up this society, the country’s third largest. For him at least, mutuality pays.
Completing the picture is Yorkshire’s Mike Regnier who saw his remuneration jump 29 per cent to £625,000. In his defence, he only became the society’s boss at the start of this year.
Should customers rail against such executive excess? They should do but most don’t. Every year they have the opportunity to vote against the directors’ remuneration report ahead of – or at – the annual general meeting. But apathy rules. The reports are overwhelmingly voted through, assisted by a voting system that encourages customers to approve all motions – and reject none.
Leeds’ AGM is this Thursday. I would be amazed if more than 10 per cent of members who bother to vote will reject the directors’ remuneration report. The same can be said of Coventry, Yorkshire and Skipton whose AGMS are all being held before the month is out. The odd member will stand up and sound off about executive pay. But they will be isolated bravehearts.
So, if you are a member of a building society and you feel boardroom pay is out of control, don’t just sit on your hands. Vote against the directors’ remuneration report. Make a stance.
Surely if mutuality has a future in financial services, it should be seen to work in the best interests of all customers and all staff, not primarily for the personal aggrandisement of a select few. Wolves in sheep clothing.
Jeff Prestridge is Personal Finance Editor of The Mail on Sunday
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