Milton Berle once said: “The company accountant is shy and retiring. He’s shy a quarter of a million dollars. That’s why he’s retiring.”
My dad once said, “If you want to get really rich while having lunch, study law or calculators”. He did neither, although he did keep a small army of lawyers and accountants in good lunches.
Through the ensuing years, my overdraft has reminded me with monotonous regularity just how right they all were, so I headed off to a recent discussion event ‘Cheques and the City’ (see what they did there?), arranged by The High Pay Centre.
The event billed itself as an opportunity to explore what’s behind the stratospheric rise in pay for top UK lawyers and accountants and asked, why should we care?
How about some concern that these lawyers and accountants also sit on the committees who sign-off on the remuneration of corporate executives, bankers and the like? They are, in effect, charged with preventing corporate greed running away with the family silver.
So, the sixtyfour-thousand-dollar-question is: far from curbing fat cat enthusiasm, are the lawyers and accountants instead fuelling corporate power, imbalance and greed? After all, their own fees rather depend on everyone staying in the Stratosphere in a self perpetuating upward spiral. Does the executive latrine exchange go a bit like this: “Hey dude, you vote through my ridiculously inflated pay demand and I’ll see that your next contract is eye wateringly lucrative”. You decide.
As the evening’s debate unfolded I learnt that an estimated 1,370 UK top lawyers and accountants were each paid over £1 million last year. The lucky winners all belonged to either the ‘Big Four’ accountancy partnerships: KPMG – Deloitte – PriceWaterhouseCoopers – Ernst & Young or the ‘Magic Circle’ of law firms: Allen & Overy – Clifford Chance – Freshfields Bruckhaus Deringer – Linklaters – Slaughter and May.
Factoid: Apparently a typical Deloitte partner – allegedly – takes home £15K a week while your average Clifford Chance partner can clock off Friday tea-time with a weekly pay packet of – an alleged – £34K.
Yes thirty-four-thousand-pounds for five days of other people’s efforts. Probably. [Gosh it’s hard to write about lawyers without breaking out in a sweat of an alleged probability nature].
Of course, everyone’s entitled to ‘An Honest Day’s Pay for an Honest Day’s Work’ and goodness only knows where we’d be without the armies of fine human rights lawyers and accountants working pro bono sorting out charity accounts. All of which makes it even more depressing that clever people with such grand qualifications seemingly waste these assets on the pursuit of ever more grotesque personal gratification.
And anyway, what amount of knowledge actually makes someone worth a gazillion-pound-pay-packet? I mean, legally you’re either guilty or innocent and 2 + 2 = 4, however creatively you crunch the numbers. No? What do you mean, ‘it’s not as simple as that?’
By way of crude comparison, a top brain surgeon takes home roughly £102K a year. For absolute genius surgical wizardry s/he can further be awarded a Platinum Clinical Excellence Award worth £76K a year. After a spot of bean counting, that brings us to a yearly wedge of £178K or roughly £4K a week. In other words, you could buy eight and a half top of the range medics for one legal eagle.
Instinct alone tells me that’s just plain wrong – on so many levels. Ok, so lawyers and accountants don’t actually produce anything, making it harder to pin a price tag on their efforts. You can’t exactly slap on a set of supply and demand curves or decipher the Gini coefficient. How about a regulator? Ah, we don’t really have one of those. The two professions sort of regulate themselves. Sort of.
‘Cheques and the City’ sets out some impressive detail about how these operators get away with this free-for-all, but here’s the ‘for Dummies’ version: Imagine a type of pass-the-parcel game. Cross-legged on the floor are corporate executives, bankers, lawyers and accountants happily passing a gigantic sack of loot around the circle.
The CEOs ask the bankers to bankroll some canny antics to justify their dizzying pay packets. The bankers ask the lawyers to cook up some clever Collaterised Debt Obligations to go with a clutch of Credit Default Swaps. Now the lawyers ask the accountants to crunch a bunch of nifty numbers and whisk them off to the Bahamas.
The return journey sees the accountants demand that the lawyers assign to them a significant slice of this funny-money. The lawyers, who know where the bodies are buried, ask the bankers to remunerate them handsomely. The bankers pay off the CEOs and print some more funny-money for themselves. Or that’s roughly the way it goes.
Now, strictly speaking, the lawyers and accountants are also supposed to keep the bankers and chief executives from paying themselves grotesque amounts of money – yes. To that end they sit on remuneration committees at the various banks and corporations. Committee members are appointed by, er, the various banks and corporations to decide how the hot shots – who appoint them – are remunerated. These “regulators”, in turn, get paid by the various banks and corporations they regulate. Uhm… Conflict of interest anyone?
But why should we care? We should probably care because, going back to the start of our pass-the-parcel, high executive pay is, in effect, stealing from shareholders and their own staff. At one end that’s yours and my pension plan, at the other end it’s siphoning off the shelf stackers’ minimum wage packet, which we then all have to subsidise with tax credits.
All of which means still more for the 1% and even less for 99%. It’s no surprise that shareholders have started a revolt. What is a BIG surprise is that the rest of us have not. Yet.
Fortified by several delicious slabs of sticky home baked cake and a glass or two of some berry drink or other, I asked: “The ‘Big Four’ and the ‘Magic Circle’ operate all over the world, including in other far more equal and progressive countries”, so what happens there?
Surely Borgen – for example – would not stand for that sort of nonsense?
“Ah”, came the answer. “The Danes and other European countries restrict executive pay through things like high taxation, but that probably wouldn’t fly in the UK. We’re talking here about the Anglo-Saxon, UK-US Capitalist model. If we emulated the European model, we’d be a lot less profitable”. And there was I thinking that the UK is European. Silly me.
So, exactly who profits from this ‘Anglo-Saxon, UK-US Capitalist model’? The pay differentials in the UK and the US are the largest in the world. The High Pay Centre says that, at 143 to 1, it would take an ordinary worker 600 years to earn the £17million pocketed by the highest-paid executives in these two territories.
Lawyers and accountants in Denmark and other countries, working for the self same ‘Big 4’ and ‘Magic Circle’ firms earn significantly less than their British colleagues – allegedly. How much less is hard to establish, as the firms are not exactly transparent with their figures. Being ‘partnerships’ they don’t have to be. Handy.
Suffice to say that in Denmark (and most other EU countries) the top 20% of the population earn around four times as much as the bottom 20% compared with six times as much in the UK. Moreover, all Danish companies with more than 35 employees have to have workers’ representation on their boards and on their remuneration committees.
Relations between employee and owner representatives are usually characterised by consensus and mutual trust, based on a shared interest in the survival and development of the company. However, a study found that employee representatives – when comparing their attitudes with those of the representatives of the owners – are more prone to take broader stakeholder interests into account, not just employee interests, but also environment and local community interests . Why am I not surprised?
And the Danes are far from alone. In Germany, for example, the unusual system of a two-tier board structure for company governance has helped prevent top pay rising as fast as it has in other developed nations. A supervisory board, consisting half of shareholders and half of employees elected by the work force, has the ultimate power over executives and sets top pay.
In 2012, employee board members at Volkswagen forced through a 20 percent pay cut for the chief executive even though the company was making record profits. They felt the C.E.O.’s pay was too high, his bonus targets too easy and that work-force wages had been held down. This was widely seen in Germany as a response to the controversy over inequality after the financial crisis.
As for the lawyers, Borgen’s courts have set down a ‘fair and reasonable’ scale of fees which seems to come out at around 10% of the monetary value of their work, with 3% for cases above DKR 1.000.000. For the accountants the average salary looks like the equivalent of £45K with 1.74% of them earning around £110K. Obviously Borgen doesn’t put quite as high a price tag on legal and admin advice as is the case in the UK.
So yes, not only should we be extremely concerned, we’re also well past the point where we really should be taking serious action against this racket. While Team GB is becoming more and more dystopic by the minute, rather than regulating fat cat rapaciousness, it does look suspiciously as if the legal eagles and the bean counters could be complicit shovellers.