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Is it time Northern Ireland firms faced review on pay?

By John Simpson

Earnings for the best-paid top executives in the UK have increased so sharply recently that a serious argument has developed suggesting that top rank earnings, usually in £'million each year, should be moderated or constrained. Interestingly, the vocal critics of excessive board room earnings are often shareholders, rather than employees.

Stock Exchange companies are sometimes challenged at shareholder general meetings. There are some companies where the remuneration decision makers fall foul of the shareholders. This tension, still an infrequent occurrence, has provoked the Financial Reporting Council to suggest that the code of conduct for corporate behaviour for Stock Exchange companies should be amended to give a sanction to a majority vote by shareholders.

Is this essentially a London or Wall Street issue? At the multi-million pound level it is. However, there is the same question of principle even for non-quoted private sector companies. The inherited tradition for private companies is that boardroom earnings attract little external scrutiny.

In an area like Northern Ireland, scrutiny of board room earnings is minimal. This is partly because excessive earnings are rare. Also, because in family controlled businesses, decisions on distributed and retained earnings of the senior people often fall within a family (or close) circle. There is a small number of companies that pay the highest paid director over £250,000 each year. In NI, probably fewer than eight businesses pay over £500,000 per annum.

The spread of earnings is less conspicuous at the top levels, but earnings at lower levels do lag behind those in other regions.

Average earnings for all employees in Northern Ireland are well below comparable averages for all UK employees and lower than in each of nearly all the UK regions. Northern Ireland has become conventionally a 'low pay' region.

That description gives an ambiguous message. Is NI a low pay region because (a) there are fewer highly skilled, well paid jobs, or (b) even in highly skilled jobs are NI earnings lower than in comparable jobs elsewhere, or (c) because in NI reliance is on an industrial and commercial structure that is predominantly (on average) lower skill occupations?

Obviously, the labour market offers a diverse range of establishments and the resultant earnings patterns contain some elements of each of these options. The labour market structure points to a disproportionate weighting of option (c).

The notable feature of the labour market in recent years has been the buoyancy of employment, showing increases broadly in line with GB, but with a continuing earnings gap in the region of 20% lower than UK averages, even though employment levels have increased.

A feature of the labour market across the UK has been the widening gap, proportionately, in earnings between top management and the core workforce.

This feature does attract criticism in differing degrees from representatives of workers, through their trade unions, and from a different perspective from shareholder representatives. There are no known norms, or performance indicators, to apply to private companies.

There is some evidence that in Northern Ireland there is a buoyant, commercially successful tier of locally registered companies.

Ongoing updating of records has identified 174 locally registered firms that, in the last reporting year (usually up to March 2016), posted pre-tax profits of over £1m.

In this group of firms, of the 100 with the highest levels of pre-tax profits, 60 were family controlled or controlled by a small group of local people. 40 were owned by external shareholders or were subsidiaries of external parent companies.

There is no easy yardstick to make comparative judgments about this group of 174 firms.

A £1m pre-tax profit proves neither success nor failure. If this was a return on a £10m investment it begins to look attractive: if the investment was £20m that is less attractive.

The private sector in Northern Ireland does have success stories to tell!

Possibly more frequently than is usually acknowledged.

Company report: Union Street (Lurgan)

Union Street (Lurgan) was newly registered in mid-2014 and then acquired a number of subsidiary businesses in October 2014.

The trading figures for 2014 are, therefore, only for a six-month period. The company’s registered address is at Clarendon Dock in Belfast.

One of the directors, Mr W Baird, is acknowledged to be the controlling shareholder.

As well as owning some Northern Ireland based subsidiaries, the group is a majority shareholder in other companies in the USA, Ireland, Estonia, Poland and India.

The group, as part of a restructuring process, has transferred significant production activity from Europe to India.

The range of business actions is illustrated by the analysis of the geography of its market sales. Eight four per cent of sales last year were outside either the UK or Europe.

The principal activities of the firm are in the textile manufacturing business, through weaving, dyeing and finishing of linen and linen cotton fabrics, for sale to the clothing sector. The group has built up a steady level of operational and pre-tax profit in its first three years of trading. Operating profits in 2015-16 were nearly 7% of turnover.

Employment in the group has varied from year to year but averaged 486 people more recently.

Union Street (Lurgan) made modest dividend payments of £100,000 in 2014-15 followed by £131,000 in 2015-16.

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