S3 E1: “PAYING FOR GOOD” PODCAST ON EMPLOYEE-RELATED METRICS IN CEO PAY with Charles Cotton, CIPD, and Luke Hildyard, High Pay Centre

Employees are our biggest asset.

21st JANUARY 2021

How many times have you read this statement in companies’ literature? Looking at the research conducted recently by the High Pay Centre and the CIPD, one would be forgiven for being sceptical when organisations affirm that their employees are their biggest asset.

Over the past few years, there has been a lot of talk about (re)defining the purpose of business and widening the range of stakeholders to include employees. Yet this hot-off-the-press research shows that:

  • Only 34% of FTSE100 companies use some form of employee-related metric in their CEO pay.
  • When they do, it represents less than 6% of total maximum incentive pay. This equates to less than 2% across the whole FTSE100.
  • However, financial performance-related metrics across the FTSE100 represent 82% of total maximum incentive pay.

In summary, the typical FTSE100 CEO would find it 41 times more lucrative to focus on their financial objectives than on their employee-related objectives.

What message is this sending to the workforce, investors and customers?

Interestingly, separate research has shown that a more engaged workforce performs better, which in turn correlates with a higher financial performance.

In addition to the stats, it’s just common sense to prefer working for an employer who looks after their staff, provides meaningful work in a safe environment and pays fairly.

In this episode of my ‘PAYING FOR GOOD’ podcast, Charles Cotton, senior performance and reward adviser to the CIPD, and Luke Hildyard, director at the High Pay Centre, ask why the people-related metrics weighting is so low in CEO pay. Is it because:

  • We can’t define the HR measures crucial to our business?
  • We don’t have a common framework to measure them?
  • We don’t have the right HR systems in place?

My view is that waiting for perfection and standardisation hampers progress. Let’s build on where we’re at through further analysis and collaboration. Only then will be able to refine HR KPIs that can be embedded into CEO pay and, indeed, into all people managers’ pay.

Your action takeaway:
We all play a part to ensure employees are our biggest asset so, whatever your role is in the investment chain, here are calls to action for you:
HR professionals:
To invest in HR technology and develop your analytical skills to interpret the data you already have, then ask the right questions to improve it.

Asset owners:
To consult your members to determine their social values and priorities for their investments.

Asset managers:
As you’re responsible for appointing board directors and voting on remuneration policies, to monitor the employee-related performance of the companies you invest in.

Proxy advisers:
To increase the weighting of CEO pay/ESG targets in your scoring methodology.

As always, if you have any questions on the topic of Responsible Reward, feel free to email me at client.care@peoplenet.ltd.uk or book an introductory call here.