How the shareholder-first business model is contributing to inequality

We studied the total net income, dividends and share buybacks for the current FTSE 100 companies index over the last five years.

From 2014 to 2018 we found that:

• The FTSE 100 companies generated net profits of £551 billion and returned £442 billion of this to shareholders. This means that overall the FTSE 100 paid shareholders an average of £1.7bn a week over the period.
• Across the FTSE 100 as a whole, returns to shareholders increased by 56% (despite net incomes falling by 3% over the period). This resulted from a 45% increase in dividends, while share buybacks more than doubled. If pay across the UK economy had kept pace with shareholder returns, the average worker would now be over £9,500 better off.
• While FTSE 100 returns to shareholders rose by 56%, the median wage for UK workers increased by just 8.8% (both nominal).
• Payments to shareholders primarily benefit a wealthy minority. UK taxpayers earning over £150,000 (barely 1% of all taxpayers) captured around 22% of all direct income from UK dividends.Dividend income accruing via pension savings also primarily benefits those at the top – 46% of pension wealth is owned by the wealthiest 10% of households.
• In 27% of cases, returns to shareholders were higher than the company’s net profit, including 7% of cases where dividends and/or buybacks were paid despite the company making a loss. In 2015 and 2016, total returns to shareholders came to more than total net profits for the FTSE 100 as a whole.
• The theory is that when profits fall, returns to shareholders should fall too. Our research found that in practice this is not the case and that profits varied significantly more than returns. Total profits ranged from £53 billion in 2015 to £150 billion in 2017, a variation of £97 billion, with a fall between 2014 and 2015 and a sharp rise in 2017. Returns to shareholders had less than half as much variation, ranging from £74bn in 2015 to £122 billion in 2018. This contradicts the idea that shareholders are exposed to the greatest risk of all business stakeholders, as it suggests that they can expect consistent returns, regardless of profitability.

Examining sectors, we found that:

• In 2018, the two largest energy companies spent at least 11 times more on their shareholders than they invested in low carbon activity.
• In 2018, the 4 largest food and drinks companies paid shareholders almost £14bn – more than they made in net profit (£12.7bn). To put that into perspective, just a tenth of this shareholder pay-out is enough to raise the wages of 1.9 million agriculture workers around the world to a living wage. These companies source raw material from some of the poorest people in the world – none take sufficient steps to ensure that a living wage is paid to workers in their supply chains.
• The UK’s largest house builders paid their shareholders £6bn between 2014-2018 - enough to buy 25,000 homes. It would take the workers who build the houses 92 years to pay for the average UK house and 19 years to save for the deposit.

Download full report (pdf)