APPLYING PLUMBERS' COMMON SENSE TO FIX EUROPE'S BANKS
c.2013 New York Times News Service
LONDON — Charlie Mullins made his fortune fixing other people’s plumbing. More recently, Mullins, the outspoken founder and owner of Pimlico Plumbers in London, is seeking to fix the European banking sector.
His idea is to reduce bankers’ pay and by doing so force banks to become more cost-effective and customer-friendly. Threats that bankers would leave London or Frankfurt, Germany, and move to the United States or Asia should their compensation be curbed are bluffs that need to be called, he said.
“There are a lot of bankers out there already, and ours aren’t any better or cleverer,” Mullins said. “It’s plumbers’ common sense.”
Mullins, 58, became involved in the debate about bankers’ pay this year when UBS, the Swiss bank, disclosed that it had given Andrea Orcel, the head of its investment bank, almost 25 million Swiss francs, or $26 million, to join from Bank of America Merrill Lynch last year. The sum, Mullins said, struck him as “obscene” and one of the clearest signs that the financial industry was in need of repair.
Since then, Mullins has been on a crusade to tell anyone who will listen that, to ensure a healthy banking sector, it needs to adopt the practices of the plumbing industry or any other services sector. Those include capping bonuses at no more than annual salaries, making bankers work harder for their pay and persuading them to care more about customers.
“Better value for customers equals more business, and more business equals higher earnings and greater competitiveness,” Mullins said. “If you make banks more efficient, people will want to use them more.”
Mullins is known as someone who likes breaking taboos and shaking up the status quo. In a popular television program last year called “Show Me Your Money,” Mullins asked his employees to disclose their salaries to one another and then come up with a preferred pay plan for the company. He also has the ear of Prime Minister David Cameron and met with the chancellor of the Exchequer, George Osborne, to advise on apprenticeship systems and on how to increase lending for small businesses.
Mullins is one of Britain’s business success stories. Born in Camden, North London, the son of a factory worker and a barmaid, Mullins left school at 15. After an apprenticeship in plumbing, he set up Pimlico Plumbers in 1979 from a basement of a real estate agency in London’s central district of Pimlico.
But it wasn’t always smooth sailing, he said. The economic downturn of the early 1990s in Britain almost bankrupted the business and forced Mullins to make drastic changes, which he encourages others to imitate to help them recover from their own crisis.
Just like the banking industry now, the plumbing industry had a tarnished reputation and plumbers had a bad name for being unreliable and charging too much, he said. So Mullins compiled a list of 20 things that people didn’t like about the industry. They included arriving late for appointments, driving dirty vans, wearing scruffy clothes and not telling customers in advance how much the job would cost.
Then he set out to do the opposite. He painted all his vans a shiny blue, dressed his staff members in uniforms and was transparent about prices.
“If you turn up at 10 to 8 for an 8 o’clock appointment, you’re the best plumber in the world,” Mullins said. “It’s so easy.”
It worked. Pimlico Plumbers now employs 200 people and has 20 million pounds in annual sales, winning Mullins the moniker of London’s richest plumber.
“We haven’t done anything clever or new,” he said. “We’ve just done what customers want and what is common sense, and that’s what the banking industry should do as well.”
The formula may not be that simple, however. Some analysts say banking is different from other industries, including plumbing, and therefore needs different compensation arrangements. Christopher Wheeler, an analyst at Mediobanca, said banks needed a more flexible pay structure because the products they offer and the markets they operate in go through cycles and can change quickly. Making bonuses a large part of remuneration instead of just paying a salary helps banks to keep down their fixed costs and avoid repeated hiring and firing depending on how the business is doing.
As public debates go, the one about bankers’ bonuses has been one of the more heated and drawn-out ones. In a controversial move, European Union lawmakers agreed this year to cap annual bonuses — with some exceptions — at no more than annual salaries starting next year. Banks have been pushing back, saying that it leaves them at a disadvantage to compete for talent with foreign competitors. Fearing for London’s standing as a global financial center, the British government joined the outcry against the cap.
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“We have major international banks that are based in the U.K. but have branches and activities all over the world,” Cameron said when the EU decided in February to curb bonuses. “We need to make sure that legislation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the U.K.”
Britain filed a lawsuit in the European Court of Justice in September over the plan, arguing that it was incompatible with EU law and would be introduced without consideration of its effect, including an increase in base salaries to compensate for lower bonus payments. Instead of reducing risks at banks, the bonus cap would have the opposite effect by pushing up fixed-costs, the British government said.
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In fact, many European banks have already increased base salaries. Now, some banks, including Barclays and HSBC, have started to consider creating a third pay pool in addition to salaries and bonuses, according to two people briefed on the discussions who spoke on the condition of anonymity because no decision had been made yet. Banks could pay monthly allowances that would not qualify as a salary or a bonus and would not be linked to performance.
Simon Garrett, head of executive reward in Britain at the advisory firm Hay Group, said the bonus cap would hurt London as a financial center in the long term.
“Rather than an immediate effect, this can mean that a company looking to set up an operation would think twice before doing that in Europe,” Garrett said.
Mullins has no patience for arguments like this, he said. Instead of debating how to continue to keep compensation high, banking executives should focus on how to improve their business and services to attract more clients. Once earnings increase, banks can think about raising pay.
“Banks are still living in the pre-crisis world when they were in governing position, but the world and the financial sector have changed,” Mullins said. In the plumbing industry, “if we paid bonuses, we wouldn’t be competitive anymore.”