An exploration of executive rewards in the UK and beyond, and the extent to which current reward structures encourage the right CEO characteristics.
‘Fat Cat Wednesday’ prompts call for greater transparency over executive pay
More needs to be done to tackle the increasing gap between CEO pay and other employees’ pay.
On 4 January, dubbed Fat Cat Wednesday 2017 by the High Pay Centre, FTSE100 bosses had already earned the average UK salary in just two-and-a-half days. In response, Ben Willmott, Head of Public Policy at the CIPD said:
‘There is still a shocking disconnect between the pay for those at the top and the rest of the workforce at too many FTSE companies, despite efforts to rein in executive pay in recent years.’
‘The situation is likely to get worse before it gets better as higher inflation in 2017 will mean many frontline workers will face a pay squeeze at a time when FTSE 100 CEO pay is already 129 times that of the average employee.’
‘This disconnect demotivates staff at work, with a recent CIPD study showing that six in ten (59%) employees identify CEO pay as an issue that demotivates them at work. The message from the workforce is clear: ‘the more you take, the less we’ll give’. Business leaders need to ensure there is a is a much clearer link between overall top pay, organisation performance and the rewards of the wider workforce or risk reducing employee engagement and productivity at work.’
‘Government can also play a role in helping to provide more transparency over chief executive pay by requiring companies to publish the pay ratio between what the chief executive earns and median pay in their organisation. This will help place more scrutiny on whether top pay is proportionate to the performance of the business and improve overall fairness in organisations, at a time when many pay packets are being squeezed.’
In a 2015 pulse survey on executive pay, the CIPD explored what employees really think about their CEO’s pay packet, as well as the impact of spiralling executive pay on the workforce. Top findings revealed that almost half of employees (44%) feel their CEO’s pay is either far too high or too high, and as Ben Willmott has highlighted, 59% are demotivated by the high level of CEO pay in the UK. The survey also showed that the way we reward leaders encourages certain types of behaviour and can have a corrosive effect on employee motivation and productivity.
A further CIPD report on the power and pitfalls of executive reward draws on lessons from behavioural science to develop ideas about how we can better reward CEOs. It asks what we need from our CEOs, how they should be rewarded and recognised, and identifies potential barriers to changing CEO reward practice. The report finds that employers need a psychological and economic perspective to really understand executive rewards and concludes with recommendations for change. The evidence suggests that we need changes to public policy that will underpin organisational change, such as greater mandates for broader, more transparent reporting and consequences for organisations that do not comply. Organisations need to go beyond these mandates by improving CEO selection and performance management, and training those who’re in charge of reward and selection decisions to ensure a clear frame of reference and minimise bias.
Undoubtedly, the UK has witnessed recent examples of highly dubious, if not outright destructive, CEO leadership. With CEO reward practice at a crisis point, the CIPD's research recommends a more evidence-based approach to setting executive pay that encourages the kinds of behaviour that lead to sustainable organisation performance, while taking the needs of all of the organisation’s stakeholders into account.
This call to curb excessive CEO reward while maximising individual and organisational performance is one way in which the CIPD is urging organisations to move away from a relentless focus on creating short-term shareholder value, towards a greater recognition that they have a responsibility for creating sustainable value for a much wider range of stakeholders - including their employees, their customers and citizens of the society in which they operate. More generally, the CIPD has been working with its members, the wider HR community and business leaders to define a set of principles that will help HR professionals and the organisations they work for to take all of these stakeholders into account when faced with difficult choices where the right path to take is not obvious. These principles, a set of fundamental beliefs about what better work and working lives looks like, will underpin a new Professional Standards Framework for the HR profession.
CIPD membership demonstrates a commitment to the highest standards of practice in HR and L&D.
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