Greedy BMD directors

[Kidman]

I received my Baronsmead Second Venture Trust annual report in today's post.

I noticed on page 33 that the directors decided to give themselves fee rises of about 20% from 1 October 2017. I will therefore be voting against resolution 3 regarding the remuneration report.

[runnygum]

Thanks for the heads up.

Sadly this is common.

[UncleEbenezer]

From memory (before their various mergers), I seem to recollect Baronsmead directors' fees as being somewhat below many of their peers, and admiring the juxtaposition of strong performance and moderate fees. I haven't looked at the rises, but I wonder if it's bringing them into line with industry norms? That is, if we discount the idea that Baronsmead's fees themselves set the norm on account of being leaders in the sector. An idea I like a lot, because it was such a good contrast with greedier but lesser stables.

Ho, hum. Is there a correlation between higher fees and lower performance? Let's hope Baronsmead isn't about to prove it for us.

[scotia]

How do you evaluate what a Director's salary should be? It would be useful to obtain some indication of the value they have uniquely added to the company - and to determine whether or not this gain could have been obtained, or even surpassed by another individual, or by the same individual at a lower salary. But of course this never happens. The norm is for the remuneration committee to look at other companies, and come to the conclusion that our directors ought to be paid more than some other set of directors. Then, of course, the remuneration committee at the other company will adopt the same policy and Director's fees escalate in a spiral fashion without any attempt to evaluate real worth or benefit. Ken Clarke, the former Chancellor of the Exchequer makes a similar argument in his political memoir "Kind of Blue" - and he says that it needs to stop. I agree. In particular at a time when 1% annual increases over a period of years seem the generous norm, I can think of no reason why a director should receive substantially more.

[Retiringat51]

I can think of no reason why a director should receive substantially more.

Or anything like as much, even?

What is the job description of Director?

Is the nature of the work "to supervise the Manager"?

I'm unable to recall the sacking of a Manager of a VCT - for which good grounds continue to abound, so maybe it is not.

What else does it entail, then?

Is the "role" of Director of a VCT a job of work or a titular privilege?

If it is the former, what is the "work"; how many hours work per day/week/month/annum does the role amount to?

P.S I'd be game for some dosh for old rope should there be any vacancies for such.

[scotia]

P.S I'd be game for some dosh for old rope should there be any vacancies for such.

I suspect you need to get on the old boys and gals bandwagon - offering to scratch the back of one member for an equivalent favour in return. Sort of like a troupe of chimpanzees I have been watching in one of these zoo programs. Only our directors seem to require more than peanuts.

[Retiringat51]

I suspect you need to get on the old boys and gals bandwagon - offering to scratch the back of one member for an equivalent favour in return.

Strewth no, British exceptionalism eludes me.

I'm uncouth, you see.When the port is passed, it remains - until drained dry.

Merry Christmas, thanks to Fonseca.

[BusyBumbleBee]

I'm unable to recall the sacking of a Manager of a VCT - for which good grounds continue to abound, so maybe it is not.

The only sacking i can remember was the sacking of the manager of the Murray VCTs - and they were taken over by Close Bros (now Albion). They now exist as Crown Place VCT and the current share price reflects the value destruction of the previous manager. Albion have managed them rather well since the 'takeover'

You have also to remember that the original VCT boards were appointed by the manager prior to launch and replacements seem to perpetuate the model. Having said that, I do know a number of VCT board members personally - some of them for many years before they became involved with VCTs and trust those. So I must assume that there are a lot of good board members out there.

[Kidman]

How do you evaluate what a Director's salary should be?

The BMD chairman, Anthony Townsend, is also chairman of several investment trusts, two of which I am a shareholder. The most mainstream of those two is Finsbury Income and Growth (FGT). Conveniently, it has the same year end so I have both annual reports to hand.
Here's a comparison for your consideration (apologies for the lack of formatting):-
total assets; BMD £187m, FGT £1,164m
number of investments; BMD 73, FGT 26
board meetings; BMD 4, FGT 5
10yr NAV total return; BMD* 84% (free of tax), FGT +205% (taxable)
chairman's fee for 2018; BMD £35,000, FGT £34,500

In both companies, the review of remuneration is undertaken by the full board under Anthony's chairmanship.

* based on figures on performance record shown on page 64

[scotia]

chairman's fee for 2018; BMD £35,000, FGT £34,500

I understand how you can compare the director's fees at two separate companies, but I still can't work out what either of their fees should be. If you are making a car, and are using outsourced parts, then you hope that your buyer will look for the highest quality at the keenest price. Logic suggests that we should also apply such rules to the selection of Directors - but how? Maybe we should start by offering our existing Directors a substantial cut on a year by year basis - it would seem just as logical as the current year by year increase.

[Kidman]

Scotia,
I didn't get anywhere near answering your question so permit me to try.

Four to five meetings per annum, all day including travelling, a few 'phone calls over the year and several hours at home preparing for each meeting. Say a total of 70-80 hours. Taking an hourly rate of £200-£250 gives a total of £14k-£20k.

In practice it is more a case of 'what they can get away with'. I suspect VCTs are more likely to attract greedy directors as the shareholders are all private individuals who generally have a record of agreeing with whatever the board proposes. In a big industrial company there are corporate and activist shareholders who are more likely to vote against various resolutions including remuneration.

[scotia]

Kidman - thanks for the response. Your (rather generous) rate per hour figures are at least a good starting point. And we should have an agreement that they are tied to CPI. Now as each Director's years in situ pass, the task should become less and less onerous, due to familiarity, and should take less of the Director's time. So we should apply that well known government ploy - not cuts, but efficiency savings, and so reduce the Director's fees, while still maintaining that their rate per hour is unchanged.
OK - I know this is not going to happen, and indeed it is a case of 'what they can get away with'.
Ken Clarke (former chancellor), when out of office took up several directorships of large multi-national companies, and he is critical on the inflation of "top-level" salaries. I quote "I expected an uproar at our annual meeting when we first awarded a chief executive a £1 million salary, but nothing happened and the process continued".
We have mechanisms (our votes as shareholders) to prevent excesses in VCTs (and major multi-nationals), but we seem powerless to activate them.

[scotia]

I have read again the Baronsmead Reports, and the policy regarding Directors' fees. I strongly object to the first part of the policy - which is the comparison with other companies. Going back to my car manufacturer analogy, if manufacturer A found that manufacturer B was paying substantially more for an outsourced component, I'm pretty sure that they would not increase the price they paid their (lower cost) supplier.
Now to the number of hours work involved in a Directorship, and the quality of the work - so that some sensible evaluation can be made. In this we are partly at the mercy of the VCT Board - who are effectively self-stating how onerous their task is. E.G. the Baronsmead document mentions the need to carefully check that the 70% rule is maintained. But surely this is a simple task of requesting the manager to make a return which is signed off by the accountant.
So I think I am inclined to agree with Kidman's number of hours. But it is the hourly rate which I find difficult to agree with. I have a strong feeling that the post is largely titular, with only a need to dump managers who are clearly underperforming - a task which is rarely carried out. Indeed, I suspect that most of the correspondents to this board could manage the task adequately. So how if I suggest that the total time involved is 10 days (half from home) at £1000 per day - would this get any takers?