To what extent can HR influence executive pay, if at all? You may have noticed, executive pay is in the news again following publication of a letter this month from Andrew Ninian, the Investment Association's Director of Stewardship and Corporate Governance. He wrote to Remuneration Committee Chairs of the FTSE 350 on 16 November to put pressure on them to scale-back executive pay in light of the pandemic - he urges them to align it with the rest of their workforce given the impact Covid-19 is having on staff pay across the piece. In particular, he highlights pensions, given that in the past it has been common practice for executives’ pension contributions to be considerably higher than the rest of the workforce.
On the face of it, in theory, this should be an area of influence for HR – they are, after all, the guardians of employee reward. However, in larger organisations the reality is that HR often has a limited involvement and, when it comes to listed companies the ownership of executive pay and reward lies usually with the remuneration committees and they tend to be populated by non-executive directors, typically from business and financial backgrounds, and often serving as lead executives in other organisations. Then again, many HR directors sit on the company's board and do, sometimes, have a Remco role. But what about a typical HR professional - part of an HR team, yes, but not on the board and without a Remco role? What role do they play? What influence can they have? Someone well placed to answer that question is employment and reward specialist James Sullivan-Tailyour. James joined me by video-link from his home:
James Sullivan-Tailyour: " So I think that there are there are two areas which mean this is an important area for HR. So, for HR experts generally within a company, a good HR team will be not just operating and managing HR but also identifying HR risks, be they legal, operational, or reputational, and increasingly executive remuneration is an area where there is a broadening scope for the company to get into reputational hot water particularly given the importance now of aligning executive remuneration with workforce remuneration. That means that the HR department within a company has a really important role to play in identifying where those risk areas may lie and helping the company understand what's going on with the wider workforce, the pay and conditions across the workforce, and helping the company and the remuneration committee to identify the areas of risk and the discrepancies between what's happening with executives. For those really key HR individuals who, perhaps, sit on the board or are really influential for the remuneration committee and involved in the wider governance of the company, again, the link that the Investment Association is expecting to see between the wider workforce on the one hand, and executive directors on the other, means that those senior HR individuals are going to be the key players in driving that alignment and making sure that the expectations of institutional investors are met in this in this regard - they are the people that link the remuneration committee, that is overseeing the paying conditions for the executive directors, and the wider HR team that's overseeing the pay and conditions for the wider workforce, the HRD, or the reward manager, whoever's that person sitting in that senior position, is going to be instrumental in getting that dialogue in place and getting the balance right between those two interest groups.”
Finally, on the subject of remuneration committees and HR's role, there is a good article on this by Louise Fisher who is chair of the CIPD and a member of its remuneration committee. She writes for People Management making the point that HR leaders looking to get ahead should consider a RemCo role. Worth a read.