Companies claim people are their most important assets – but is it true?

An investigation by the CIPD and the High Pay Centre found that only a third of FTSE 100 companies took any account of employee-related issues in the calculation of bosses’ bonuses, writes James Moore

Premier Inn: Owner Whitbread links 10 per cent of its CEO’s bonus to employee-related metrics 

Big businesses love to make a song and dance about their people being their most “important asset”.

You’ll see variations on that theme in almost every CEO’s quotes at results time; in chairpeople’s annual report statements; dotted around corporate websites: “Come work for us! We love our people!”

An investigation by the High Pay Centre and the Chartered Institute of Personnel and Development (CIPD), the results of which will be presented today, pours a keg full of ice cold water over that claim. The figures they have unearthed suggest that it is about as reliable as one of Donald’s Trump’s recent tweets on the subject of who won the US presidential election.

Engagement with a firm’s “most important assets” is used as a metric to determine its CEO’s variable pay – their bonus to you and me – at barely a third of FTSE 100 companies (34 per cent). The rest completely ignored the issue. It didn’t account for much even with those that included it. The average was just 5.9 per cent of the CEO’s annual reward.

That’s so low as to hardly be worth bothering about. It compares to the 82.4 per cent linked to financial measures. There’s also usually some attempt to recognise a CEO’s “personal development” in the bonus part of their remuneration package.

Perhaps surprisingly, but perhaps not if you think about the industry’s potential for disaster, the companies with the best scores were mining outfits. Performance against employee-related metrics made up 17 per cent of the variable pay of Fresnillo’s boss, 11.8 per cent of BHP’s, 11.4 per cent of Polymetal’s. The top performer with some level of UK consumer recognition was Whitbread, the owner of Premier Inn, Beefeater and Brewers Fayre, with 10 per cent.

Given that its business is hospitality, which means its financial success is very much dependent on an engaged staff keeping customers happy, you might have expected employees to be recognised to some extent. But the number is still fairly poor.

You can very easily see how a reliance on purely financial metrics may very well incentivise some CEOs to squeeze their people at the expense of the long term success of their businesses. The average length of tenure is typically less than five years. It’s very much a case of get the big job, make as much cash as possible, move on.

There’s been a lot of talk about “stakeholder capitalism” recently, and of the need for boards to balance the interests of other “stakeholders” (chiefly, workers) alongside those of shareholders.

“Insofar as CEO pay incentives reflect corporate priorities, these findings suggest there’s still a bit of progress to be made in that respect,” said the High Pay Centre’s director Luke Hildyard.

You can probably file that under “classic British understatement”.

Theresa May wasn’t much of a PM – although she was a leader of JFK’s stature when compared to the current occupant of No 10 Downing Street – but she did try and move the dial a bit on this front.

She talked about burning injustices, seemed to recognise the problem with CEOs making millions while workers took home crumbs and even introduced some modest reforms to the UK’s corporate governance code with the aim of furthering employees’ interests.

But she stepped back from forcing big businesses to include employee representatives on the board, allowing companies to cover off the issue by asking a non-executive director to pretend to care about their “most important assets”. Most opted for that. 

While there is clearly work to be done on this front, CIPD senior adviser Charles Cotton highlighted a potential impediment to progress: there’s little agreement about how to define and measure things like employee absence rates and costs, let alone engagement or inclusivity.

But while efforts to forge a consensus on standards are ongoing, there’s no reason for companies not to try and find their own ways of motivating their CEOs to pay a little more attention to the state of their “assets”.