The furore over the tax affairs of the Prime Minister got me thinking about executive pay.
The CIPD published some research at the end of last year about what employees really think about their CEO’s pay. CEO pay is now 183 times higher than the average salary, compared with 47 times in 1998. Around 7 in 10 workers believe this is too high and almost 60% said it demotivates them, while more than half think that high executive pay damages an organisation’s reputation. The CIPD survey suggests 7 in 10 workers want greater pay transparency generally, and more than half (53%) want reward information published for all levels.
It is interesting to note that for FTSE 100 CEOs there is no statistically significant relationship between pay and company performance. Across the FTSE 100, rises in estimated executive pay outstrips rises in company value; increased executive remuneration does not produce increased company performance.
Why it matters
Current practices in executive remuneration don’t work in the best interests of companies and may suppress company performance by damaging motivation of both executives and the wider workforce. Of course, shareholders can voice their opposition to executive pay policy but the average vote against pay awards across the FTSE 100 was just 6.4%. To me it seems the institutional investors who manage the savings of most of the population are not very effective in managing the issue, nor do they seem concerned about the impact of excessive executive pay on the economy and societal fairness.
We have a productivity problem in the UK and perceived unfairness damages employee engagement. Judgements about fairness are part and parcel of organisational life but research shows that inordinate wage gaps are associated with lowered productivity, loss of group cohesion, lower quality and even theft. There is firm evidence as to the effects inequity of all kinds has on organisations – a group of employees temporarily assigned to lower status offices during an office relocation, lowered their performance; lower-status employees assigned to better offices increased output.
It’s not just engagement that is affected, recruitment and retention become problematic if workers don’t feel they have a stake in organisational success. Less-skilled, qualified and experienced employees earn less, that’s fair. Given training and development they increase their worth and employability. Most employees are eager for such opportunities but many feel that routes for development and progress are not available, it’s a major reason for job change. The organisation that does not support workers to grow in their roles and fulfil their aspirations will struggle in the war for talent.
Research indicates that organisations providing career development opportunities are six times more likely to engage their employees than those that fail to do so. Employability and professional development are increasingly important to staff at all levels who tend to think in broad career terms with a view to mobility, career agility and flexible work-life options. Some maintain we are “all in this together” but those struggling on minimum wage don’t see it that way.
Stefan Stern, director of the High Pay Centre, suggested last year that, “Outlandish pay sustains the myth that a single, heroic individual is somehow running a big business on his or her own. That’s simply untrue. Leadership matters, and good leaders should be well rewarded. But the workforce does the work.”
Leaders may not want to think about executive pay as a social issue, but as a corporate issue it is clear that employees who feel valued by their employer are more likely to feel engaged at work and satisfied by their role. If you don’t believe it is a social issue read The Spirit Level by Richard Wilkinson and Kate Pickett. This shows how the gap between rich and poor is bad for everyone including the well-off. Also look out for the upcoming documentary based on the book The Divide which looks at how economic division creates social division.
Image credit: Shutterstock