By Charles Cotton, Senior Adviser for Performance and Reward, CIPD
CEO pay has been in the spotlight for some time now, but 2020 could be the year that businesses truly wake up to their responsibility to ensure that people throughout their workforce are paid fairly and appropriately for their contribution to organisational success – and maybe even start to change their view of what success looks like.
Whether you work in the public or private sector, for a small or large organisation, new corporate reporting requirements – concerning not just CEO pay, but corporate culture and employee voice too – are good news for people professionals across the economy. If businesses take them seriously, the people profession will be in hot demand to gather and analyse the data needed for annual reports in the first instance and, longer-term, provide solutions to fix any problems identified. Ultimately, it’ll make all our organisations better places to work for everyone.
What are the reporting rules on culture and employee voice?
The UK Corporate Governance Code asks company boards to pay greater regard to corporate culture and how they preserve value over the long-term. It also asks them to describe, in their annual reports, how they have considered the interests of stakeholders, including the workforce, when performing their board duties. All firms with more than 250 UK employees must include a statement summarising how the directors have engaged with employees and taken their views into account when making decisions that impact them.
What do people professionals need to know about CEO pay ratio reporting rules?
As a people professional, your interest in the debate about executive pay likely depends on the size and type of organisation you work for. But whether the rules apply to your business or not, CEO pay ratio reporting will bring both risk and opportunity to you and your employer. The risk is that the increased transparency will raise more questions than ever about CEO pay – the more your staff hear about CEO pay in the media, the more questions they’ll have about what their CEO gets paid, and why. But with that comes the opportunity to address unfairness in your organisation and push people-related priorities higher up the business agenda.
If you work for a publicly listed company with more than 250 employees, you need to swot up on new CEO pay ratio reporting requirements to ensure your employer is complying with the law and reaping the opportunity to improve pay practices and build trust with employees, customers and shareholders. Read our factsheet for guidance on what the requirements entail and HR teams’ role in helping businesses comply.
Five ways in which new company reporting rules could boost your career
1. Get your employee voice strategy off the ground
If you’ve struggled until now to get senior-level buy-in for your employee voice strategy, highlighting the Corporate Governance Code requirements around employee engagement could be your key to success.
To grasp this opportunity, consider the following:
Learn more about employee voice and employee engagement.
2. Beat your employee engagement targets and improve employee relations within your workforce
Excessive pay gaps are a huge source of distrust and disengagement. Greater transparency and fairness around pay, coupled with more opportunities for people to make their voice heard, will help you build greater trust among your workforce, ultimately helping you reap all the benefits of an engaged workforce.
To grasp this opportunity, try asking questions such as:
3. Make organisational culture a strategic priority by identifying opportunities to improve business productivity
The UK Corporate Governance Code asks companies to pay greater regard to corporate culture and how they preserve value over the long-term. Find out who’s writing your annual report and help them describe how your organisation’s culture is (or isn’t!) aligned with the company purpose and business strategy, and the steps your company is taking to ‘promote integrity and value diversity’.
Scrutinising CEO pay could also help you to identify and address underlying cultural issues that could be thwarting performance. Research from Nesta found that executive pay systems were discouraging innovation because the focus on short-term financial measures means businesses are less likely to invest in R&D or workforce training.
To grasp this opportunity, consider the following:
4. Increase your influence by showing your board how greater investment in L&D, succession planning and performance management will benefit your business.
New CEO pay reporting requirements will force businesses to take a long hard look at the quality of leadership in their organisations and the value for money they’re getting from their Key Management Personnel. It’ll also force them to look at how the performance of the rest of the workforce is managed and rewarded – and ensure that people throughout the organisation know what they need to do to increase their earning potential. All this will make your performance management and L&D strategies difficult for senior leaders to ignore.
To grasp this opportunity, consider these ideas:
5, Get full business buy-in for your health and well-being projects
Greater scrutiny over how and why CEOs are paid, coupled with rising expectations around responsible and sustainable business, could eventually lead to new measures of business performance that will see CEOs incentivised to invest in things like L&D and the well-being of their workforces. If your employer currently only pays lip-service to health and well-being initiatives, this is bound to make them take it more seriously – and the benefits will speak for themselves.
To grasp this opportunity, try collecting data and insights to show your senior leaders, boards and investors a different view of ‘success’. For example, rather than looking at financial performance alone, look at other measures of success such as customer satisfaction, employee well-being, workforce engagement and retention rates, or even measures of societal and environmental impact. You can then highlight any areas of dissonance that could pose a risk to the company’s reputation or long-term potential for growth and success – and show them how investing in things like health and well-being could help mitigate those risks.
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