Wages peak (a lot)

Looking at the average compensation of the 468 European corporates and their trend does speak a lot about a business model and occasionally raises the question of whether the first stakeholder is not staff indeed. 

All the following figures are annual all-inclusive compensation as paid in 2021 by the employer. Staff will get 65% to 75% of the quoted amounts depending on their location but still need to pay their personal taxes and all sorts of health-related services. The net brought home may not be much more than 50% of the average compensation mentioned in these lines.

Bottom up

Start with the pittance paid by Accor to its (mostly indirectly or part-time) staff. It is not difficult to see a case of modest people taking a direct hit to their tiny income as COVID-19 put them out of work. Lucky shareholders never really face unions in these business models. A risk may be that some ESG-driven shareholders will start questioning the ‘S’ at Accor and push for a change in the hotel’s economics. IHG is presumably way smarter in its reporting as its average is €100k compensation, i.e. it is truly asset-light as it does not need to book the teams of room-maids. 

Average compensation at Accor take a COVID-19 hit from a very low base

Working at Accor implies you are from ‘diversity’ (French speak to avoid mentioning race), a woman and unlikely to be much educated. Compare that with staff from FDJ, a French state-controlled business where the average compensation is €100k/y, a reflection on a monopoly market share which rewards exceedingly well its personnel when matched to Flutter’s (€65k) or Entain (€21k). Average compensation at FDJ is presumably not deserved but FDJ is akin to a tax collector like Greek OPAP (average compensation €53k) through lottery. That is a great business model indeed.

Top down

Looking from the top brings other nasty comments. Fund managers are not supposed to be an oligopoly but do pay themselves better than investment bankers whose fortune come and go with the markets’ taste for risk. The following chart confirms that Amundi and DWS staff know when to get an uptick in their compensation. UBS staff is less aggressive. Fascinating is dull pbb Deutsche Pfandbriefbank’s average compensation at €156k. For the record, BCP and Raiffeisen will pay less than €36k (big exposure to Central Europe’s cheap staff), Swedbank  will pay €77k but a state-controlled bank, ABN, will pay €137k. One would like to understand what unique competences such compensation covers at ABN.

Selected fund managers and bankers compared average compensation

Weird instances

Looking at compensation as a proxy for a business model possibly going sideways offers an interesting insight. Consider EDF, whose highly unionised staff is unable to run the nuke fleet above 75% of capacity, but gets €86k a year on average. The Orsted guys, who are more an energy hedge fund than a utility, make €87k. There is ‘worse’ than EDF: state-controlled Verbund will pay €113k. At least the Republic of Austria has seen Verbund’s share price double over the last two years but that cannot be a reason to pay such high compensation. Of course, compensations are accessory to the business of driving a utility but these are levels that stretch belief.

Booze raises spirits and compensation in a singular way at Remy Cointreau. Say €125k a pop when Campari staff will happily bring home a gross €83k. The gap between the two is a biggish question mark as Remy is tying a lot of capital in its inventories that makes its prices and thus its profits, while Campari has no such requirement. Does the art of ageing spirits warrant investment bankers-type pay? Where is the risk that would justify such high compensation? Risk sits with shareholders, not with staff. 

What Swiss capitalism says of compensation

Swiss companies mainly have headquarters in Switzerland with staff everywhere but in Switzerland (except for smaller caps). An extreme case is DKSH with an average compensation of €21k. Still, working for a Swiss group pays off handsomely with an average compensation of €86k vs. a €58k average for the total AlphaValue coverage. The figure is propelled by money managers, with Julius Baer leading the show for Switzerland (€235k) and the whole AlphaValue coverage. In the same vein of a second liner paying top money, soon to delist Vifor will pay €195k somewhat more than Novartis or Roche. Good pay is not always at bigger corporates. 

Any conclusion?

One is that ESG-driven investors have their eyes more trained on greenery than on a healthy Marxist view of value-added sharing. Cross-checking compensation across businesses and borders raises interesting angles about how a business is managed. A cursory look such as above suggests that there are too many businesses which are costly to shareholders in that sharing game. 

More on AlphaValue's ESG website, or on the Research Platform.