Skip Navigation

Speak to a consultant on +44 (0)20 3457 0894

Lessons we can learn from executive pay

Resources

Insights

Resources

Insights

Posted by Justine Woolf on 23 August 2016

Lessons we can learn from executive pay

Executive Compensation | HR Reward | Pay Transparency | Reward Consultancy | Reward Intelligence |

Executive remuneration is one of those topics that doesn’t seem to be able to shift from the spotlight. When some execs seemingly receive pay-outs that don’t appear to compute with actual levels of company performance, it’s no wonder why. An independent panel of experts (the Executive Remuneration Working Group) was set up last year to review exec pay at UK listed companies and they have recently published their final report.

When reading the report, much of the content and recommendations rang true to me about the state of reward in general; not just with regard to executive pay. The underlying theme focusses on the need to rebuild trust, and the recommendations predominantly suggest common sense around increasing flexibility, levels of transparency and improving engagement.

Understanding investors’ views

Recommendation six focuses on improving shareholder engagement and in essence says that consultation should be just that – an opportunity to consult and listen, not necessarily act on that feedback. All too often in HR, we talk about ‘consultation’ as a key process when changing reward structures and as consultants we advise it from the start of any change programme, but the practice is often very different. It partly stems from the ‘need to consult’ with unions for example, and when relationships aren’t at their best, HR is often unwilling to share potentially contentious information upfront.

However, the most effective impact we see from changes to reward structures happen when employees are truly consulted (i.e. listened to) and involved from the start. The report talks about companies needing to treat the consultation process as a ‘two-way dialogue’ to obtain feedback from their shareholders and that the role of consultation should be to ‘understand the views of shareholders’ before deciding the best way forward. Absolute common sense, but often the reality is not so, and there are lessons we can all learn here in how we consult and involve employees in decisions, not just shareholders.

A balanced view on the use of discretion

Likewise, recommendation eight talks about sharing how and when discretion has been applied to remuneration and the impact this has had. While more prevalent in executive pay and financial services than other sectors, the level of discretion particularly on bonus payments only adds a layer of opaqueness to the process and adds to the sense of unfairness to employees.

I wrote recently about an HR manager describing the employee view of the allocation of bonus payments as, a ‘dirty little secret’, despite HR regarding it as calibrated and fair. The lack of communication about how decisions were made clouded employee perception, and even though it was done in a fair way, employees didn’t understand it and therefore didn’t trust it. The idea that companies are more open about when they use discretion and why, should help to remove the mystique to employees.

When it comes to reward at any level in the organisation, we could all do better at building levels of trust. While all the recommendations in this report won’t necessarily apply to every business, increased transparency and true consultation (where we do listen) can only be a good thing for everyone.

If you would like help with your executive pay or any aspect of reward transparency, get in touch on 020 3457 0894.

« Back to Insights

×

MENU