How much should coops pay their top executives?

How much should cooperatives pay their senior managers?

This is, of course, a controversial question.  In the fall-out from the Co-operative Group’s current woes we can expect a lot of focus in the time ahead on the amount of money former Chief Executive Peter Marks took in pay and remuneration from his members’ society.  (The Treasury select committee has already had fun in prizing out from the Co-op Bank’s former boss Neville Richardson the size of his golden farewell:  you’ll find the exchange here).

Like all large companies, the Co-op Group has a remuneration policy for its senior staff.  The policy talks of “the importance of attracting, retaining and motivating senior executives of the appropriate calibre”, and says that base salary levels are reviewed usually annually “having regard to competitive market practice, in particular salary levels for similar positions in comparable companies”.  The base salary is only one part of the package.  There are four other components: pension contributions, an annual incentive plan, a long-term incentive plan and executive benefits (such as health care and company cars). There’s nothing unusual here:  this is the way things currently are in the world of executive remuneration.

Now it’s certainly the case that, speaking as a member of the Co-operative Group myself, I want someone running my society who knows what they’re doing and is paid for being competent in handling a multi-billion pound business. But how much is acceptable, and how much is too much?

Unlike most large companies where increasingly institutional investors are prepared to get uppity at the size of executive pay packets, cooperatives have only the members themselves to ask the difficult questions. So, ironically, coop bosses may come under less scrutiny over remuneration than they might if they worked in a plc.

Recently the Canadian financial cooperative Desjardins has been very actively discussing how much their President Monique Leroux and her executive colleagues should be paid.  Following some much-publicised heated debate in recent years, a policy on executive compensation went to the Group’s AGM in April this year where it was approved by the Desjardins’ members’ delegates (although a third of the delegates were unhappy enough to vote against it).  Desjardins says it aims to benchmark its level of executive pay against comparable pay in other financial cooperatives, rather than across the whole market.  This means that Monique Leroux’s remuneration is well below the median reportedly paid by all equivalent Canadian financial institutions  (for the record, her salary and incentives last year totalled about 2.15 million Canadian dollars, plus a further million dollars or so in pension contributions).

Presumably inspired by these discussions, Desjardins has commissioned the management consultants Bain & Company to prepare a paper for next year’s global cooperative Summit in Québec on executive remuneration generally in cooperatives.  We’ll wait and see what it says.

If cooperatives are to be genuinely ethical businesses, however, perhaps we need to tackle this question another way, by asking what sort of pay inequality is acceptable in the world we all share.  What sort of spread should there be between the highest paid and the lowest paid members of an organisation?

François Hollande announced last year that bosses of publicly owned firms in France should have a pay differential of no more twenty times the lowest paid worker, a move which he said was to ‘show solidarity’ with the low paid. Twenty times may still be a bigger differential than some cooperators might want to suggest, but it is considerably less than the 70:1 ratio which the Co-operative Group reported in its latest annual accounts.

There is, of course, another way of doing things.  The workers’ cooperative Suma has complete wage parity and still manages to run a multi-million pound business successfully.  Very successfully, in fact:  I hear that this year’s profits mean that the workers can give themselves a profit bonus equivalent to two months’ salary (rather better than the John Lewis partners’ bonus, note).  Another world is, indeed, possible.

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