It’s the first week of January, so it must be time for “high pay day”, the High Pay Centre’s illuminating calculation of the moment at which the average chief executive of a FTSE 100 company will have been paid as much as the average UK worker will earn in the entire year. The imaginary gong will strike at about 9am on Friday morning.
That, notably, is slightly later than normal because the thinktank has to use backward-looking data for its exercise and, relatively speaking (a crucial qualification), the FTSE 100 crew had a lean time during the first pandemic year. In 2020, their average pay fell from £3.25m to £2.7m. That was still about 86 times the median earnings of a full-time UK worker but represented a multi-year low ratio-wise.
Do not, though, imagine a trend has been established. Three factors suggest normal service, as viewed from the boardroom, will be restored. First, the FTSE 100 rose 14% in 2021, which will inflate the value of share-based incentives that tend to be the biggest components of large packets.
Second, those companies that accepted furlough support from the public purse, and sensibly judged it unacceptable to award boardroom bonuses while doing so, will now feel they’re off the leash. Third, remuneration committees will be under pressure from executives to apply a catchup approach after a year of relative (again) restraint.
The only force pushing in the other direction is the shareholders. Here’s Andrew Ninian of the Investment Association, the fund manager’s trade body: “As we recover from the pandemic, investors will be watching to ensure [last year’s] fair approach is maintained.” That is hardly blood and thunder stuff. Prediction: high pay day will fall earlier next January.
Next still the smartest operator in town
This time last year, Simon Wolfson, Next’s chief executive, said it was “harder than ever to predict sales and profits for the year ahead”. He’s proved his point in spades because his first stab at a profits forecast was £670m, which has turned out to be a wild underestimate.
Five upgrades later, and with only three weeks of Next’s financial year left to run, the group now says it’s on track for £822m. The last flurry was provided by a pre-Christmas rush, including in the shops, not just online.
Wolfson describes the horizon-gazing challenge this time as “unusually difficult”, which could almost be regarded as an improvement in clarity versus “harder than ever”. Not by much, though. None of his “five areas of uncertainty” can be called minor.
Will the release of pent-up demand, which almost certainly helped in 2021, fade during the year? Will consumers prefer to spend on holidays and going out? Will inflation in food and energy curb spending on clothes and homeware? Will Next’s own price increases, expected to be 6% by the autumn as it absorbs higher shipping costs and wage rises, depress demand? How will consumers react to a 1.25% rise in national insurance plus possible rises in mortgage costs?
Yes, that’s a decent summary of the non-Covid trading worries. All would be mitigated by inflation-matching rises in workers’ pay, but therein lies another deep uncertainty.
The good news for Next investors is that Wolfson is still pencilling in a 7% increase in sales and a 4.6% gain in profits, taking the latter measure to £860m. But it would be unwise for the rest of the non-food retailing sector to get too excited. Next has proved over a couple of decades that it is the smartest operator in town. It may well find 7% revenue growth within the cost-of-living squeeze; many others won’t get near.
Electric truck firm hits the skids
The early stock market story of 2022 is the sell-off in US tech stocks, and the best illustration is Rivian, the electric truck and van developer that listed last year at a valuation of $65bn (£48bn) despite having generated no revenues. The stock price more than doubled soon after listing last November, delivering a market value of $150bn, but on Thursday touched its starting level.
A specific worry is that Amazon, Rivian’s big backer, unveiled a deal this week to buy battery-powered vans from Stellantis, the former Fiat Chrysler. Nobody should have been shocked by the appearance of competition, of course, and Rivian and Amazon cooed sweetly that their own partnership was solid.
But nor, equally, is the market’s reappraisal of Rivian’s worth remotely odd. A company with no revenues was briefly valued at more than Volkswagen, a firm that made profits of €9.7bn (£8.1bn) last year. That was the truly bizarre part. If the tech sell-off gets serious, there is still room to reverse.