Executive Pay Matters holiday banner

With Jingle Bells on the radio and shop windows festooned, there’s no denying it – the countdown to the festive season is on! This year, “fair pay” will be at the top of every reward professional’s gift list (at least it is ours) as we compare sizes of stockings and slices of pudding. We know there is increasing pressure from new regulation and social media to disclose and compare a variety of statistics in support of the fair pay agenda, and once the statistics are unwrapped they can’t be returned!

So, how can you prepare? As is our tradition, our gift to you this year is the following festive ditty to the tune of ‘Let it Snow’ which we hope will gently remind you of your fair pay obligations! Remember, this is a time of peace and goodwill to all men… and women!

Oh, the political climate’s frightful
But we're feeling quite insightful
So here's what you need to know
Let it flow, let it flow, let it flow

(We hope you’re singing this out loud!)

The focus on Fair Pay ain't stoppin'
And the big pay cheques ain't droppin'
From the CEO to your average Joe
Show your Ratio, Ratio, Ratio

The government’s latest White Paper1 (29 August 2017) asked for companies to disclose the ratio of their CEO pay to the average pay of their UK workforce in an attempt to contextualise pay quantum. Although the required methodology is yet to be finalised, many companies have already started to calculate draft figures. From an investor’s perspective, a company’s published ratio is likely to be looked at on a relative basis across the relevant sector/industry as well as on a year-by-year basis to determine whether it is moving in the “right” direction. It is unclear yet whether publication of these ratios will lead to more stakeholder or government intervention. After all, what is the “right” ratio of Christmas pudding to brandy butter or indeed CEO pay to average worker pay?

When your gender pay comes to light
You could get caught in the storm
But if you communicate right
It has the power to transform

All organisations with more than 250 UK employees will have to publish their gender pay gap statistics by April 2018. Employees will undoubtedly react to the numbers when published and many are likely to be unclear about the differences between gender pay and equal pay, which could lead to an increase in the number of equal pay claims. To defend against allegations, it’s important to have confidence in your statistics and understand the drivers of your gap. There have been a range of reactions from organisations so far – from a simple compliance response to others choosing to make this a key differentiator for them in a competitive talent market. Wherever you wish to fall on this spectrum, the messaging around your statistics is key as people will likely judge this present by its wrapping. So, as you begin to write your thank you cards, it may also be time to start thinking about how you will develop your gender pay gap narrative to ensure you own your story.

Oh, the Committee remit's growing
And the employee’s voice needs showing
Start to educate your RemCo
Let ‘em know, let ’em know, let ‘em know

As the aforementioned fair pay agenda strengthens, issues relating to fairness, inclusion and diversity are increasingly moving onto the Remuneration Committee’s agenda (and the revised Corporate Governance Code that the FRC has just opened a consultation on2 reinforces these changes). You could say that the Committee’s wish list just got longer. Simply put, Remuneration Committees must now do more than look horizontally across the top of the organisation (informed only by shareholders’ expectations and the views of the executives themselves) and broaden their remit to also look vertically down through the organisation. Aside from the CEO pay ratio, there has been focus on strengthening the employee voice, considering wider workforce pay levels and movements and ensuring equitable pension proportions across the company.  We urge you to make sure you let your RemCo how others are widening their agenda as you wouldn’t want them to be on Santa’s naughty list.

Willis Towers Watson’s View

In a climate that is somewhat under the weather, with limited growth predicted until 2021, adopting a clear fair pay agenda may be one of the best ways for an organisation to help drive growth.3 Research consistently shows that a more diverse and inclusive workforce helps business by bringing new skills, innovation, sounder decision-making and higher staff satisfaction and retention. McKinsey estimates that closing gender pay gaps in the workplace could add £150 billion to the UK GDP by 2025.4 So, as well as seizing the opportunity to “do what is right” and engage your employees and shareholders on the issue of fair pay, you could also secure some (non-waistline related) growth this festive season by starting to shape your fair pay agenda before your competitors do. ‘Tis the season to be cunning after all (or did we get that wrong…?)!

Footnotes

1 World-leading package of corporate governance reforms announced to increase boardroom accountability and enhance trust in business
2 Proposed Revisions to the UK Corporate Governance Code
3 Spring Budget 2017: Philip Hammond's speech
4 Gender pay gap - Closing it together. Actions for employers