Returns to shareholders at UK’s top 100 firms surged by 56% in 2014-18 as wages rose by 9%

This article is more than 10 months old

This article is more than 10 months old

Shareholder payouts at Britain’s biggest companies have risen more than six times faster than workers’ wages since 2014, according to a study that shows how investors have won the largest slice of company profits in recent years.

Returns to shareholders at FTSE 100 companies increased by 56% between 2014 and 2018, while wages edged up by just 8.8%, the report says. Firms maintained shareholder dividends and share buybacks “regardless of company performance” through good times and bad.

The drinks maker Diageo and the luxury retailer Burberry were among the companies to pay more in combined dividends and buybacks than they generated in net income.

Some businesses, including the aerospace engine-maker Rolls-Royce and the commercial property owner Land Securities, even paid returns to shareholders when they made a loss, leading to accusations that Britain’s corporate sector has become focused on protecting shareholder benefits at the expense of long-term investments and workers’ wages.

According to analysis by the TUC and the High Pay Centre thinktank, the UK’s top 100 companies generated £551bn in profit and returned £442bn to shareholders in dividends and buybacks in the five financial years to 2018 – equivalent to £1.7bn a week.

The report found that FTSE 100 shareholders received £123bn in dividends and share buybacks in 2018, compared with £79bn in 2014.

“This amounts to a 56% nominal increase in returns to shareholders, which is 6.4 times the 8.8% rise median wages for UK workers over the five years,” the report says.

“If pay across the UK economy had kept pace with shareholder returns, the average worker would now be over £9,500 better off.”

The TUC said the findings showed that reforms were urgently needed to directors’ duties and the composition of boards, which should include greater representation from the workforce.

The TUC general secretary, Frances O’Grady, said corporate rules were “tilted in favour of wealthy shareholders and executives while families struggle to make ends meet”.

The union group proposed banning dividend payments unless the employer adopts a “living wage”, which would mean raising the minimum pay of low-income workers. Company law should also be rewritten to downgrade the “primacy of shareholders” and introduce a broader list of aims that set workers’ interests alongside those of shareholders, suppliers, customers and local communities.

The High Pay Centre’s executive director, Luke Hildyard, said Britain’s corporate culture prioritised shareholders over investments in the workforce, new equipment and protecting the environment.

“We won’t raise living standards in the UK without a change of business culture. Boards remain too focused on generating short-term returns for wealthy investors, but are not doing enough to address their responsibilities to their workers, the environment and wider society,” he said.

The report added: “The consequence of excessive rewards to shareholders is less money available for investment in long-term, organic growth, wages, R&D, training and steps that would reduce environmental impact.”

Official figures show that employment has climbed to record highs in the years since the 2008 financial crash and unemployment has dropped to its lowest level since the 1970s.

However, business investment has increased only modestly over the last 10 years and productivity growth, as measured by a worker’s output per hour, has averaged less than 1% a year in that time compared with more than 2% a year in the 20 years before 2008.

Wages increased strongly in 2019 to hit an annual growth rate of 4%, but the rise is expected to be short lived and in September annual increases in wages had already fallen back to 3.6%.

Figures from the data provider Link Asset Services earlier this year showed that dividends paid to holders of all UK shares jumped almost 16% to a record high in the first three months of the year, putting investors on track for £100bn in payouts this year.