Setting aside any comments that might be made about the irony of a Government (all but Conservative in name) in apparent agreement with the socialist sentiments of today's final report from the High
Setting aside any comments that might be made about the irony of a Government (all but Conservative in name) in apparent agreement with the socialist sentiments of today's final report from the High Pay Commission, there are an alarming number of employment implications for consideration. Here are my initial thoughts on just a few of them.
The banking and finance industry might be forgiven for feeling slightly at sea by the mixed messages from Government. On the one hand, the FSA recently published its revised remuneration code, championing the virtues of good corporate governance by structuring executive remuneration to award performance over the long term rather than the short term by deferring the payment of bonuses. This was seen as a way of encouraging the sort of risk management which may have helped avert the banking crisis. That idea now seems to have been torpedoed by the High Pay Commission's recommendation that executives should simply be paid a basic salary. Will service agreements now need to be revisited to reflect the new agenda?
Another interesting recommendation is that companies should be forced to publish details of executive pay packages. As with many things, the devil is in the detail, but it is not inconceivable that disgruntled executives might use this as a way of launching equal pay claims against the company. Only very recently, have we heard of reports that more needs to be done to increase female representation at the executive level. Isn't there a risk that an increased number of females on a "fairer" (lower) salary than the male incumbents would demand equality? Of course, companies could and should seek to ensure, as far as appropriate, parity between the incumbents and new blood but this could take time where incumbents are on lengthy service contracts.
To truly give power to the people and hold executive pay to account, the reforms also advocate that employees should be properly represented on remuneration committees. But could there be some unintended consequences from this well meaning idea? The reforms hint that this objective might be achieved by legislation if shareholders are slow to relinquish control at the helms. Depending on the level of employee representation at this level, there could be some significant implications in future for companies looking at collective bargaining, business reorganisations or redundancies. With employees influencing executive pay, there is at least the theoretical possibility of employees settling scores during pay renegotiations. Will executives really be able to act in the proper interest of the shareholders when they know that they might be biting the hand that feeds them?
The banking and finance industry might be forgiven for feeling slightly at sea by the mixed messages from Government. On the one hand, the FSA recently published its revised remuneration code, championing the virtues of good corporate governance by structuring executive remuneration to award performance over the long term rather than the short term by deferring the payment of bonuses. This was seen as a way of encouraging the sort of risk management which may have helped avert the banking crisis. That idea now seems to have been torpedoed by the High Pay Commission's recommendation that executives should simply be paid a basic salary. Will service agreements now need to be revisited to reflect the new agenda?
Another interesting recommendation is that companies should be forced to publish details of executive pay packages. As with many things, the devil is in the detail, but it is not inconceivable that disgruntled executives might use this as a way of launching equal pay claims against the company. Only very recently, have we heard of reports that more needs to be done to increase female representation at the executive level. Isn't there a risk that an increased number of females on a "fairer" (lower) salary than the male incumbents would demand equality? Of course, companies could and should seek to ensure, as far as appropriate, parity between the incumbents and new blood but this could take time where incumbents are on lengthy service contracts.
To truly give power to the people and hold executive pay to account, the reforms also advocate that employees should be properly represented on remuneration committees. But could there be some unintended consequences from this well meaning idea? The reforms hint that this objective might be achieved by legislation if shareholders are slow to relinquish control at the helms. Depending on the level of employee representation at this level, there could be some significant implications in future for companies looking at collective bargaining, business reorganisations or redundancies. With employees influencing executive pay, there is at least the theoretical possibility of employees settling scores during pay renegotiations. Will executives really be able to act in the proper interest of the shareholders when they know that they might be biting the hand that feeds them?