# Explaining one of Polly\’s numbers

So, I asked her, where does this come from?

in the past decade the average bonus for FTSE 350 directors rose by 187% while share prices declined by 71%.

And I am told that it is here.

In the past
10 years, the average annual bonus for
FTSE 350 directors went up by 187 per
cent and the average year-end share price
declined by 71 per cent.

Hmm, so, did the FTSE 350 decline by 71%? No, it didn\’t.

So, a reasonable assumption would be that the share price of those early components of the FTSE 350 declined by 71%.

Given that the FTSE 350 is based upon market valuation (number of shares times price) we would therefore assume that at least some of such companies would fall out of the FTSE 350 to be replaced by others newly more valuable.

Hmm. But the calculation of the bonuses is based upon those currently in hte FTSE350. That is, the companies whose value did not shrink by 71% and thus fall out of the index to be replaced by those who pay higher bonuses.

Sounds like an argument in favour of bonuses to me really.

## 20 thoughts on “Explaining one of Polly\’s numbers”

1. And you take the word of the High Pay Commision at face value? Very suspect.

2. They have a Table on page 23 which seems to be the basis for the “-71%” claim as it shows year-end share price gradually erraticall recovering to 28.7% of starting value by end 2010. The error is in their assumption that share prices fell 80.8% in 2001. In reality the FTA-350 Index fell 15.3% in 2001.
The most plausible explanation is that they divided 578,2 by 3004.6 instead of 2578.2 by 3043.6 ans *nobody* thought to query a number that was so at odds with commonsense (their figure for market capitalisation at end-2001 is 84.3%).
Tell her the HPC figure is obviously junk.

3. This statistic is in the foreword of the report.

So to be clear, they actually looked at a cohort of companies which at the start of the period (10 years ago) were in the FTSE 350. They then took the same 350 companies and then calculated their stock price today. From this they saw a drop of 71% over that 10 year period.

And then they took the average bonus of the FTSE 350 company heads 10 years ago and the average bonus of the FTSE 350 heads now and saw a 187% increase. However over this period the cohort of companies changed so that they are not the same as those at the start. The survival bias is therefore having an effect.

So the stock price drop includes company failures and the bonus increase does not. Indeed it counts companies which are doing well or actually in high growth mode.

The comparison is not only bogus, it is highly dishonest. I am sure they knew this and did this on purpose.

4. The HPC data is claimed to be Year End FT350 share prices 2000 to 2010 from Incomes Data Services.

So ‘last decade’ means 2000 to 2010.

There are funny date selection effects there, but looking at the accompanying graph (page 12 here:
the decline is alleged to be 80%+ in one year between 2000 and 2001, and then a gradual recovery.

EPS has increased by 50%, and Market Cap is roughly where it was.

And only 16% of the companies in the index are the same.

The index itself is flat over the period for share price:
http://uk.finance.yahoo.com/echarts?s=^FTLC#symbol=^ftlc;range=20000403,20120801;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

WTF?

I’d say Polly is cherry picking a vivid stat from her scrapbook without having bothered to check it; it must be a day with D in the name.

Something seriously wrong with that stat in the report, though.

5. @john

Yes it is table 4.1

100 share price in 2000 drops to 19.2 in 2001

If I look up google i find

On Dec 29 2000 the FTSE 350 price is 3163
On Dec 28 2001 the FTSE 350 price is 3004
This is a drop of 159
In % terms it is a fall of 5.03%

But this is the changing FTSE index. Not the fixed cohort as of the end of 2000.

We do not know from this which companies left the FTSE 350 in 2000-2001. The size of the drop in this report looks so large that it could only be a mistake or it can only have been caused by a large number of companies failing. I am wondering if there were a large number of dot com companies which crashed out of the FTSE 350 in 2001 and which were then replaced by the time the FTSE 350 reported end of 2001. I am sure there were some but not enough to cause such a large fall.

If this is the case then the bonuses and pay of the CEOs should be zero for the remaining 9 years. So I would imagine a massive drop in bonuses.

Can someone ask the HPC. .Their report is very vague on this detail.

6. @ Frederick Bloggs
No, they did not. They looked at nearly all the FTSE-350 companies each year (varying between 349 and 331). They estimated the share price fall in 2001 – demonstrating their gross incompetence by claiming it was 80.8% – and then looked at the FTSE-350 companies in 2002 and the share price fall and chain-linked the results to get a nonsense figure for the “fall” over the decade (their figure for market capitalisation actually shows a rise).
They CANNOT have looked at start and share prices as they state that more than 35% of the original companies are still in the FTSE-350 which was marginally *up* over the decade, so to get a 71% fall they would have needed to find some companies with share prices significantly below zero!!

7. @john – ok I need to read the report more carefully. I am really trying to find an explanation for what they did since this error is so significant that it will destroy most of their conclusions.

I am not sure about the last point you make since the FTSE 350 is market value weighted. So suppose using an extreme example just 1 company made up 99% of the index by market value. It is only 1 out of 350 so is 0.029% of the index by number. If it then defaults and the stock price falls to zero the value of the index cohort will fall by 99%. And 99.7% of the companies are still in the index.

8. PS I am more convinced now that this is just a massive screw up. Will be fun to see how this plays out.

9. She can hardly disclaim responsibility for the stat by pointing to the HPC report – she was one of the so-called “expert panel“.

Polly, one of the NEF twits, two authors of “wouldn’t it be better if we were all the same” books and enough not-obviously-“progressives” to permit the compliant masses not need to struggle to hard to believe their claim of some degree of balance …

10. I think “End of Year” may mean March 31st, but I’m not sure.

11. SE you missed:

“Jonty Oliff-Cooper is the Director of Policy and Strategy for the social business A4e. ”

ðŸ™‚

12. Matt,

I had him lumped in as a ‘not-obviously-“progressive”‘. The mere fact that he’s worked for the Tory party means that to the audience the HPC are playing to, he is obviously the sort of rapacious capitalist bastard whose idea of social choice is fried or baked baby for breakfast. And A4e can easily be painted as full-time screw-the-workers thieving capitalist bastards too.

Obviously, from our end of the liberal / authoritarian spectrum, somebody who has worked for Demos and DfID and who “focuses on exclusion, community and public service transformation”, is clearly “one of the usual suspects.”

13. Polly is a useful idiot. One who can be depended on to spout out anything put before her without question.

HPC have not made a cock-up, they have deliberately twisted the stats to their advantage and hidden it in plain sight by pretending to be transparent and show all their workings. That we are arguing about how to get the same figures they get using our own methods shows that they are being underhand and devious.

14. @ Frederick Bloggs
I admit that the FTSE-350 being up doesn’t automatically mean that the 126 continuing companies are up, just that they cannot have fallen to below the initial value of the bottom company in that group. I didn’t want to spend three paragraphs to make the point.
We *know* that less than 224 such companies have gone bust since we hear about every single one that does. Quite a few have been taken over at a premium to pre-bid prices – Abbey National, BAA, Bank of Scotland, BPB, British Vita,Bryant, Corus (“British Steel”), Domestic & General, Exel, Halifax, LASMO, National Westminster, Northumbrian Water, O2, Pilkington, Singer & Friedlander, Thames Water, Wilson Connolly, Wimpey, Woolwich off the top of my head and many more if you want to search. So the 224 drop-outs have some value – significant just from those taken over – and the 126 continuing companies have either risen or fallen by too little to drop out.

15. @ Frederick Bloggs #6
The LSE “Secondary Markets Fact Sheet” for December 2000 gives the closing FT-A 350 Index for 29th December as 3043.6.

16. John77,

You raise an interesting point about takeovers.

If one company takes over another the executives have larger responsibilities and would expect a bigger pay packet to deal with it. How a takeover gets reflected in share price I don’t know but I imagine share prices would be more resistant to growth than executive pay in a takeover situation.