RemCo reform the way to improved people and pay governance

Out-Law News | 07 Sep 2021 | 10:40 am |

James Sullivan-Tailyour tells HRNews about the report by the CIPD and High Pay Centre offering practical guidance to HRDs and board members


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  • Transcript

    A new report has been published on employee share plans and the benefits they can deliver. It is a joint publication by the CIPD and the High Pay Centre offering practical guidance to HR Directors and board members on how to improve their people and pay governance through RemCo reform and by including the workforce in the pay-setting process. It’s a particularly useful report, we think, because it is full of practical advice and examples of how companies can strengthen their pay and employment practices.

    This goes back to earlier report published by the CIPD and High Pay Centre in 2019 which argued that companies should improve their people and pay governance through RemCo reform and the inclusion of the workforce in the pay-setting process. This latest report offers the practical guidance on how to achieve this, based on existing examples of good practice, and is drawn from a series of interviews with HR and reward leaders. There are three key messages for HR and business leaders which come out of this report. First, to formalise people and culture matters as a board-level issue. Secondly, to measure company performance in respect of social and environmental outcomes as well as financial metrics. Thirdly, to undertake meaningful engagement with the workforce and to have substantive worker involvement in the pay-setting process.

    So let’s look at what that means in practice. James Sullivan-Tailyour is a share plans specialist who has been looking through the report and its recommendations, particularly what it says about share plans. I asked James what he makes of it:

    James Sullivan-Tailyour: “Well, this report by the social market foundation is really interesting because it's the first report, certainly that I'm aware of, and certainly in recent times, that has really taken a forensic look at employee share plans and the benefits that they can deliver not just for the employees that participate in the scheme but also for the company that operates the scheme and also, interestingly, for society as a whole. So the report has obviously identified that employees who participate in broad-based all employee share schemes tend to have a greater level of savings and household wealth, but also that the companies that operate the schemes outperform other competitors on share indices and also generally tend to have better employee engagement and levels of satisfaction in the company. What’s most interesting, and picked up a lot of attention, is the report has demonstrated that the use of employee share schemes may be a really important tool in addressing the UK’s relative productivity gap with other western European countries and the USA and that by giving employees a stake in the company there's strong evidence that that increases output, increases value add and increases productivity overall.”

    Joe Glavina: “As you know, the report sets out a number of key findings. What did you make of that section?”

    James Sullivan Tailyour: “Well, there are some important recommendations aimed at the government and a lot of that is aimed at improving awareness of employee share ownership schemes and the benefits of them both widely amongst the public and employees, but also amongst employer companies and making them aware of the tools that are available to them to set these schemes up and the benefits that they can deliver. For example, there's a proposal that there be a specific commission, or body, set up the sole purpose of which is to promote the use of employee share schemes in the UK. Some of the other recommendations are a little bit more granular and they're aimed at addressing one of the issues that's identified in the report which is that employee share schemes are really good for well paid employees in settled jobs that tend to last a long time, for many years, but what they're not good at, what they're not currently doing, is involving people whose positions are more temporary, perhaps only for a short period of a year or 18 months, and also at including lower paid employees who, for one reason or another maybe they feel that they can't afford to participate in the plan, or it's too complex for them to understand, or that the incentive that's available to them just isn't worth the bother. There are some recommendations about how employee shares share plans could be improved, their operation could be improved, and what companies are allowed to do with them could be enhanced, so that it can encourage a broader population of participants and, in particular, capture those employees who are currently missing out from participating.”

    Joe Glavina: “We’ve seen a number of reports along these lines so why do HR Directors need to read another one?

    James Sullivan-Tailyour: “Yes absolutely. It is right that some organisations are sceptical about the benefits of introducing an employee share plan and I think a lot of that has got to do with the complexity of the schemes and there's no getting around the fact that introducing an employee share plan is a complex job. It’s a complex job to implement it and to operate it on a go forward basis. There are all sorts of considerations that have to be taken into account from tax to accounting to getting your communications right. That is a big job for HRDs and company secretaries, there's no denying that, but what this report really demonstrates is that companies that are prepared to put the time into get an employee share plan up and running really pays dividends in terms of employee engagement, in terms of company profitability and growth, and also there can be social dividends reaped as a result. Turning to the employee scepticism piece, I think this is where some of the recommendations of the report around tweaking the way in which the schemes work will be really interesting and helpful. For example, some of the recommendations are aimed at allowing employees who are in shorter term positions, or in industries where there's a lot of chopping and changing between jobs and two different organisations, can continue to benefit from their participation in the share plan and don't have to stay around for three or five years before they receive any value. That can be a real demotivating factor for employees who know that their time within an organisation is unlikely to last as long as the share plan is expecting them to stay around before they see any benefit. So, if changes like that can be introduced, I think it could be really important in broadening employee participation in these types of arrangements.”

    Joe Glavina: “It’s a good news story, clearly, but how does HR go about bringing this to the attention of employees? The obvious problem is they can’t be seen to be giving financial advice.”

    James Sullivan Tailyour: “Well, it is tricky in that there's a balance that has to be struck there but the great thing about some of the share plans is that the benefits are quite often obvious because there is no risk for participants. So either participants will be receiving shares for free, or they will be participating in an arrangement where they can withdraw at any time and get the money that they've already contributed back into their pocket. So often it's a case of not giving advice to participants as to the benefits of a scheme, but just highlighting those features of the scheme which have to be there in order for the scheme to work properly and comply with all of the legislative requirements. So well designed employee communications around share plans are often able to emphasise the benefits without ever giving advice and that is the most important part, in my experience, of an employee share scheme, making sure that the communications that you send to employees hit all of those right notes and when that is done, and when the benefits of the plan are shown to speak for themselves, then those organisations that get those communications right see really high levels of take up and high degree of employee satisfaction with the plan.”

    That report published by the CIPD and High Pay Centre is called ‘The Role of the Remco - How to achieve good governance of pay, people and culture’. As James aid, it is full of practical advice and working examples, so very useful. We have included a link to it in the transcript of this programme.

    - Link to ‘The Role of the Remco - How to achieve good governance of pay, people and culture’