By Dr Scarlett Brown, Policy Consultant, Corporate Governance and Responsible Business
There is growing recognition that good culture and employment practices are a way of driving value in business, and of driving down risk – especially when it comes to culture. As we head into a period of transformation and change post-pandemic, it is vital that boards and businesses have the right structure and approach in place.
New research by the CIPD and the High Pay Centre, sponsored by the Joseph Rowntree Trust explores how boards are addressing people matters, culture, workforce and executive pay and workforce engagement. The report will be launched in July 2021, and identifies case studies of how boards can ensure good oversight over people and culture matters at the boardroom and engage the workforce in the pay setting process. It also offers a roadmap for HR leaders and business leaders looking to broaden the remit of their remuneration committees (RemCos), or use other levers for including people aspects at board level. For HRDs and people professionals in leadership roles, finding the right way to provide insight to the board on workforce matters is key.
Why do we need to formalise people and culture in the boardroom?
In 2019 we made the case for organisations to formalise the place of people at the boardroom by evolving their RemCos into people and culture committees. This allows space for the board to have a substantive conversation around people, in an interlinked and holistic way. Organisations that have done it also told us that it acts as a powerful mandate to ensure the board includes directors with experience in the people profession – something that is increasing but is still limited.
Our recommendation was based on two key aims. First, we believe people and culture (and other related, non-financial metrics) need sufficient time and focus by the board, and this provides that formality rather than, for example, including people only as part of a CEO update or ad hoc agenda items. Second, it helps to demonstrate you are meeting the requirements of the broader UK Corporate Governance Code, which requires the RemCo to consider wider workforce pay when setting their remuneration policy.
Our latest research, which was based on interviews and roundtable discussions with 35 HR leaders, board directors, and investors, identifies the factors that can help to achieve these aims, with or without a people and culture committee. Many of the leaders we spoke to were concerned with the feasibility of broadening the remit of the RemCo, but agreed with the need to formally recognise people and culture at the board.Many people told us that the RemCo already ‘has enough to deal with’. Ironically perhaps, the changes in recent years to remuneration policies, such as the introduction of LTIPs designed to tie performance to longer term horizons, have had the unintended effect of making it so complicated that there is no space to consider wider factors.
Numbers are important, but the narrative is the vital context boards need
All of the HR leaders and directors we spoke to had, at the minimum, a standing agenda item around people at their main board meetings. This would include a schedule of matters and deep dives, such as culture, diversity and inclusion, retention or responses to the pandemic. Most also provide a people report to other committees – such as the nominations committee, especially around pipeline and succession planning. At one end of the scale, we spoke to an organisation that reports people metrics to the NomCo RemCo, the Audit Committee and the main board. Another had information only going to NomCo and RemCo, but this includes a full comprehensive scorecard of people metrics and workforce pay provided to the RemCo. Only one had the people matters built into the CEO update and no dedicated paper to the board presented by the HRD.
All said that they provide a blend of data and narrative – numbers are there, but the narrative is the vital context boards need. This also helps in cases where the board doesn’t have a people expert. As one leader said: 'They know that people matters are really important, and they kind-of know what they want to hear, but in many cases, without core expertise, they take comfort in the numbers without really getting to the bottom of them. If you try to explain, for example, why good employee engagement is not the whole picture of the culture of the business, people’s eyes glaze over!'
'Asking people’s opinions and then not following through is hugely damaging for trust and engagement.'
The new Corporate Governance Code requires companies to put in place a formal mechanism for workforce engagement with the board. Our findings echo others’ such as the Involvement and Participation Association’s (IPA) recent research: there is huge variation in terms of the mechanisms used, but also the intention, aims and outcomes. Some said it was a great opportunity for the workforce to raise issues; a listening exercise for the board. Others use it to gather feedback on specific board issues. Some examples included a company that had regular listening events, where any employee can join the video call and put questions to the board. Another has a formal workforce council in place – asking for feedback on specific policies, including the executive’s pay. In all cases, we find that key to making engagement work is being clear about its intention: is it for listening? To give information? If you are seeking feedback, will it be actionable? As one HR leader put it: 'Asking people’s opinions and then not following through is hugely damaging for trust and engagement.'
Examples of boards using engagement to discuss pay or executive pay is still extremely limited. Some were surprised that there was so little ‘noise’ from the workforce on CEO pay, with some suggesting it may be overly complicated, and others feeling that people care more about their own pay than the executive pay, and were more challenging of, for example, the gender pay gap report. This balance does however shift in those organisations with strong union representation, which appear to have stronger engagement on all people issues, as well as more mature and formalised engagement mechanisms.
A roadmap for change – with HR leaders in the driving seat
Although there isn’t a one-size-fits-all approach, we found common themes in those doing it well - which gives us a roadmap to change for others. Where companies have a clear connection and genuine understanding that people are crucial for delivering the strategy – especially in industries that rely heavily on people and where engagement leads to performance, such as knowledge or sales-based – this was clear at the board. As with all areas of board dynamics, the influence of the CEO and Chair is vital. It is a simple answer, but we continue to find that if the Chair or the CEO sees it as important, it will be high on the agenda. Having board members with HR or CEO experience also seems to be key to driving better engagement. HR leaders also spoke about the focus they put on ensuring the metrics are reliable and the narrative of reporting is clear, and that they connect it to other strategic levers such as risk management or value creation. On many occasions this strategic focus would be led by a previous crisis – proving the adage that we should never let a good crisis go to waste!
Our full report will be published in Mid-July. We'll be sharing it via our social media channels: twitter @cipd and linkedin.
