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Remuneration Committee changes at the CIPD - and beyond?
The CIPD's recent response to the Corporate Governance Code consultation - and a new Remuneration Committee appointment - highlight the importance of employee voice
In February 2018 the CIPD responded to the Financial Reporting Council consultation on the revised Corporate Governance Code, drawing on expertise and insights from senior HR leaders. While the Code formally applies only to listed companies in the UK, we believe there are some good corporate governance practices that all organisations could benefit from – and some are leading the way already, including the CIPD itself.
Representation of employees’ voice at the most senior levels of organisations was a key focus of the consultation. The new Code offers three possible methods for improving employee voice, and we recommend that companies choose one or a combination of the mechanisms that best fit their business.
1. A designated non-executive director (NED) responsible for understanding and sharing employee perspectives to the board
While this might be the most straightforward option, evidence suggests that few boards incorporate HR directors – or a director with an HR background – at board level and, in some cases, onto the executive board. To bring insight on the people side of business to those senior discussions, organisations choosing the NED representation route should look for individuals with experience of leading a people/HR function, understanding of people management and workforce data, as well as the ability to put that insight into wider business and societal context.
Although a non-executive director dedicated to employee issues is most likely to be seen as a credible contributor to Board-level discussions, there is always a risk that, as an external representative, they might lack in-depth knowledge of workforce issues, leadership styles and culture, and, therefore, have little impact on decisions overall. To make their role as employee champion successful, the NED should have access to HR insights and data from the HR function, a formalised relationship with the HR or people director, and a clear way of engaging with the workforce. Ideally, all NEDs should have the skills to appreciate and take into account workforce insights, rather than this being in the remit of a single individual.
2. Appointed workforce director
A director appointed from the workforce would bring a different perspective to the board and could help improve the perception of the board’s openness and engagement on workforce issues among staff. However, they would also need significant training, especially as technical expertise and knowledge of the business, such as how to gather and interpret wider workforce insights, may be required to build director’s credibility and drive effective decision-making.
A workforce director – together with the organisation – would need to carefully consider the ways they build trust with the rest of the workforce. First, there needs to be an effective and fair method for appointing an employee director. In addition, there will need to be a clear understanding among the workforce of the types of issues that will be eligible for board discussion, clarity over the process for raising issues with the employee director to be discussed with the board, as well as ways for employees to find out the outcomes of relevant discussions.
3. Formal workforce advisory panel
A workforce advisory panel is the most complex of the options, but one with high potential for providing a direct “live link” to employees, encouraging transparency and more considered conversations about the impact of the business model on the workforce.
There are a few things to consider to make a formal workforce advisory panel work most effectively. Criticism against such panels in the past have centred on the need for employee representatives to balance their identities as workforce representatives and employees. Use of formal workforce advisory panels can also weaken the voice of trade unions in employee representation, if the role of each entity is not made clear. Finally, unless there is expertise on people and workforce issues at board level among executive or non-executive directors there is a danger the insight from the workforce panel will not have real traction.
In the response to the FRC consultation, the CIPD also suggested that the Remuneration Committee (RemCo) should have a wider remit to consider the reward and financial well-being of the entire workforce (not just senior executives), ensuring that reward decisions across the organisation reflect the strategy, values and purpose of the enterprise. We will be publishing research to explore how the RemCo can evolve to broaden its focus to wider people issues later this year.
CIPD employee joins Remuneration Committee
In the meantime, having considered the options against the CIPD’s own organisational context, we have appointed one of our employees to the CIPD’s Remuneration Committee. Brad Taylor, Director of People, CIPD said:
‘This is a significant and positive move for the CIPD in providing balance to the Remuneration Committee's discussions on matters such as organisational reward, succession planning, and our gender pay gap.
With increasing focus on wider workforce issues it's important that the Remuneration Committee has as full an understanding as possible about all dimensions that impact performance and engagement. Having an employee member's perspective is extremely useful to these debates.'