Bonanza: Skipton chief executive David Cutter
Some of the bosses of the country’s building societies have enjoyed jaw-dropping pay increases while customers continue to receive pitiful interest on their savings.
Exclusive research by The Mail on Sunday, published today, shows that 13 society chief executives received double-digit increases or more in their 2021 remuneration.
The biggest award by far was granted to David Cutter, longstanding boss of Skipton, who saw his overall financial package for 2021 leap by nearly 103 per cent to £1,309,000.
This was primarily a result of the award of a £622,000 ‘performance’ bonus on top of his basic salary of £599,000. In 2020, Cutter withdrew from the bonus scheme. He will be standing down from his role immediately after the society’s AGM on April 25.
Six other society chief executives received six-figure bonuses last year. These include the bosses of societies much larger than Skipton (Coventry and Yorkshire) as well as those a fraction of its size.
For example, Mark Bogard, who received a £115,000 annual bonus, is in charge of The Family Building Society which is a tenth of the size of Skipton and operates just one branch in Epsom, Surrey.
Cutter’s bonus was primarily a result of the booming profits from Skipton’s core savings and mortgage division. Last year, Skipton made overall profits of £271.8million, compared to £118.8million the year before – with savings and loans accounting for 87 per cent of the profits.
These profits are made from the difference in interest charged on borrowers’ loans and the interest paid to savers. The Bank of England base rate has risen from 0.1 per cent in November to 0.75 per cent today. The MoS’s Give Savers A Rate Rise campaign calls for all banks and building societies to give savers a better deal.
Although Cutter’s ‘single variable pay arrangement’ for 2021 is based on a number of factors including customer satisfaction levels and the growth in savings and mortgage balances, profit is the major determinant.
The more profit that is generated above a pre-determined target, the higher his annual performance award. So it is in Cutter’s interest – and that of other Skipton executive directors – to keep a lid on the interest savers are paid.
In Skipton’s defence, Cutter’s financial rewards are for running a successful business – unlike Mark Hartigan, boss of insurance giant LV, who last year received a £511,000 bonus despite botching a proposed £530million sale of the business to US private equity company Bain Capital. Both Skipton and LV are mutuals, owned by their members.
Also, the North Yorkshire-based society does pay more attractive savings rates than all the major high street banks. But the contrast between the financial fortunes of Cutter and ordinary Skipton customers could not be more stark.
For example, a saver with £10,000 in Skipton’s instant access account, everyday saver, started 2021 on an interest rate of 0.15 per cent – in other words a promise of £15 annual interest on their £10,000 balance.
By the end of the year, the rate had doubled to 0.3 per cent in response to a rise in base rate from 0.1 per cent to 0.25 per cent.
But still only equivalent to £30 on a savings balance of £10,000, being ravaged all the time by inflation. Today its easy access savings account pays 0.55 per cent. Cutter’s 2021 remuneration works out at £3,586 for every day of the year.
At The Family Building Society, a customer with a Branch Saver account started 2021 with 0.35 per cent interest on a balance of £10,000, equivalent to annual interest of £35. By the end of the year, despite the increase in base rate, the rate had fallen to 0.2 per cent (annual interest of £20).
WHAT THE RESULTS OF OUR RESEARCH SHOW
While only 43 building societies are in business today, after many fell by the wayside in the financial crash of 2008, they still play a key role in providing a home for savers’ money.
There are more than 23million savings ‘members’ of building societies – seven times the number of borrowers. As members, customers are, in effect, owners of the society in the same way as shareholders are of a listed company.
Between them, building societies manage assets of some £454billion. To their credit, they often run branches in communities that the big high street banks have long left.
They are also community focused, often supporting local charities in the areas where they have branches. And they will often take a more personal approach on lending decisions – rather than the computer-driven model adopted by the big banks.
The MoS analysed 35 report and accounts for 2021 that have so far been released by building societies. Only Teachers, with a December year end, has yet to publish 2021 accounts.
The other seven have later year ends. They include the country’s largest building society Nationwide which has a financial year ending tomorrow. Its accounts for the year to April 4, 2021, show that boss Joe Garner received remuneration totalling £1,236,000 – less than Skipton’s Cutter received last year.
Skipton’s business is around a tenth the size of Nationwide. Details of Garner’s financial package for the year ending tomorrow will not be revealed for a couple of months, so it could swamp that of Cutter’s. He is handing over the reins at Nationwide to former TSB chief executive Debbie Crosbie.
Details of the total remuneration received by building society bosses – embracing basic salary, any performance bonus, pension and other benefits (a car, for example) – are shown in the table.
Of the 35 whose remuneration we have examined, only four saw their 2021 financial package shrink when compared with 2020. All but five of the 35 received annual bonuses, ranging from Cutter’s £622,000 to the £9,927 that Kevin Gray got as boss of Bath, one of the sector’s smallest building societies. Among those not to get bonuses were Harpenden’s Sarah Howe and Buckinghamshire’s Gerard O’Keeffe.
In the case of Howe, who resigned from her job in September last year, she and her fellow finance director received no annual bonus because the ‘profit hurdle was not reached’.
Harpenden’s profits dropped from £211,000 to just £86,000. O’Keeffe’s 2021 remuneration of £187,000 includes no bonus, although a note in the accounts does state that £23,660 was paid last month for his ‘performance’ in 2021.
All bar three of the 35 societies posted larger profits in 2021 than in the previous year. This indicates – quite strongly – that the vast majority of building societies have put profit rebuilding and boardroom rewards before paying savers better interest rates. As well as Harpenden, Bath and Hanley Economic also saw their 2021 profits fall.
CAN MEMBERS DO ANYTHING TO PROTEST?
All members – savers and borrowers – of building societies can register their disquiet over excess boardroom pay.
They can do this by voting against the directors’ remuneration report ahead of the annual general meeting – or at the meeting if they are willing to travel to it.
For societies with end of December year ends, most will hold their AGMs later this month. For example, Skipton’s meeting will take place on April 25 while Coventry, the country’s second largest society, will hold its AGM three days later at the Coventry Building Society Arena.
Members of most building societies can vote ahead of the AGM – by post, online or via a branch. For Skipton, the voting deadline is April 20 – Coventry’s is April 25.
Although voting against the directors’ remuneration sends a disapproving signal to the board, it is no more than that. The vote is nonbinding which means the board does not have to act on it.
Organisations such as the Building Societies Members Association have long argued for the remuneration to be subject to an annual binding vote.
It also believes that any bonuses paid to directors should be based on improved benefits for members (higher savings rates, for example), not on making bigger profits.
Although members often speak out against executive pay at the AGMs, only a minority vote against the remuneration report. For example, at Coventry’s AGM last year, only 8,326 voted against, compared to more than 96,000 who voted in favour. The respective figures for Skipton were 4,787 and 58,082.
This suggests widespread apathy, but it is not strictly true. Many customers use a so-called ‘quick vote’ when voting ahead of an AGM. This in effect hands over their vote to the society’s chairman.
In the case of the remuneration report, it means a vote for it, not against it. The BSMA has long called for the quick vote to be ‘banned’, describing it as ‘underhand’.
WHAT DO THE SOCIETIES SAY IN THEIR DEFENCE?
On Friday, The Mail on Sunday asked both Skipton and The Family to justify the 2021 remuneration packages awarded to bosses David Cutter and Mark Bogard.
Skipton said the 2021 remuneration of executive directors reflects the group’s record performance, which included the acquisition of estate agent Countrywide by subsidiary Connells.
Cutter, it added, played a ‘central role’ in the purchase and setting up the group for an ‘encouraging future’.
It confirmed that Skipton’s executives voluntarily withdrew from their 2020 bonus scheme – which explains the 102.6 per cent jump in Cutter’s 2021 remuneration.
Last year, it said Skipton paid an average savings rate of 0.65 per cent, 0.37 percentage points above the market average. Also, following last month’s base rate hike, all of its variable savings accounts pay 0.50 per cent or more.
Family told the MoS: ‘We care deeply about savers, but cannot affect the overall market which has been at historic low levels.’
On executive pay, and the 2021 bonus of £115,000 paid to boss Mark Bogard, it said: ‘Executive pay is set independently against exacting targets to balance the needs of savers and borrowers in a competitive market while delivering growth, sustainability and great service for our members.’
The Building Societies Association, the sector’s flag waver, admitted that pay and bonuses for senior leaders is an ‘understandably sensitive topic’.
It said that when deciding executive pay, societies’ remuneration committees and boards ‘scrutinise competitive levels and benchmarks within the financial services sector, balancing the need for remuneration to be competitive whilst remaining true to building society mutual values. Members are best served by talented leaders.’
On savings, it said that societies in the past three years had paid £2.4billion more in interest to members than they would have got from accounts at high street banks.
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