Management Futures May Round up

31 May 2014

A particular feature was anger of the short-term nature of some of the performance targets.

This came just two weeks after around a third of Barclays’ shareholders refused to support the Board’s remuneration policy, which involved increasing the bonus pool for investment banking despite reduced profits, with one stinging comment from an investor at the AGM saying that: “We’re paying for Manchester United, but getting Colchester United.” In more measured tones, but probably more devastating, Alison Kennedy, governance and stewardship director at Standard Life Investments, observed: “We are unconvinced that the amount of the 2013 bonus pool was in the best interests of shareholders … The dividend was unchanged in the year and an additional £5.8bn of capital was raised from shareholders. We also believe that this decision has had negative repercussions on the bank’s reputation.”

High pay has even generated controversy in the mutual sector, with anger over the scandal-hit Co-op offering £3.5 million in salary to the new chief executive earlier this year.

These controversies give a misleading picture for executives as a whole, however. The profile of executive pay is a little like footballers’ pay: huge rewards for a few at the very top, but much more moderate remuneration in the lower leagues. Also, as the Barclays controversy shows, it is performance, rather than levels of pay, that is often the greater cause of concern.

Across the economy as a whole, both salaries and bonuses have been moderating. Fresh salary data in a survey by the CMI and XpertHR show that the average salary before bonuses for directors was below £40,000, and that bonuses fell by 23% to an average of just under £50,000. The data comes from a survey of 68,599 executives in 279 UK employers.

This month’s blog highlighted how, for decades, the theories underlying executive and other employees’ pay respectively were inconsistent and illogical: assuming that senior managers are only incentivised by money, and that junior staff almost never are. If there is a difference, it’s more likely to be the other way around, but the more telling point is that all elements of an employer’s ‘deal’: opportunities, reward, good working environment and so on, ought to be considered in the round, and that the same generic principles ought to apply to all.

Does the increasing moderation towards the pay of executives (though not, as yet, footballers), indicate more pragmatism and equality between those at the ‘top’ of the organisation and others, and a move away from purely financial incentives? The 12th May evidence session of the All-Party Parliamentary Group on Management, coordinated by the CMI, heard a case story on Roche Pharmaceuticals by Professor Jules Goddard. It involved an experiment in which sales teams were divided into two. The first was subject to the usual range of targets and financial incentives, the second was simply told to ‘do your best’ for the customer. The second group was more than 30% ahead in Russia, and more than 60% higher in Bangladesh. The explanation lies in the greater teamwork and sense of responsibility engendered – employee engagement scores rose sharply.

It’s a huge cultural shift for a pharmaceutical firm, but it fits with all the evidence on employee engagement: that pay will not always motivate on its own, but equally that it can’t be ignored. Also, that sales people and executives are still people, not robots programmed to respond to elaborate incentives in a predictable way. A common approach to all staff, based on the principles of a good wage, fairness and a mature approach to performance management, tends to yield better business results as well as a more equal society.

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