Not all cats are fat – executive pay

The CIPD has launched a 10-point set of guidelines to help HR Directors and Remuneration Committees set executive remuneration. The guidelines are considered and temperate and have avoided the temptation to rush to simplistic solutions (unlike much press and political comment). The first four points discuss the appropriate characteristics of executive reward structures and, in particular, the variable elements and the need to avoid schemes that encourage inappropriate risk taking. All good stuff.

Interestingly, the remaining six points focus on role and responsibilities of remuneration committees. They discuss the factors they should take into account, stress the need for the committee to be knowledgeable on reward matters, if necessary, calling upon appropriate independent expert advice (my favourite, that one) and to be prepared to exercise judgment.

At the present time, when you read of ‘executive remuneration’ and ‘remuneration committees’ the words ‘fat’ and ‘cats’ leaps to mind. But it is not just City firms and large plcs that rely on remuneration committees to set directors’ pay. Just about every charity, not-for-profit organisation and many quangos report to a board of trustees from which a remuneration committee will be formed. These committees normally take direct control of the Chief Executive’s pay and, in most cases, the rest of the executive team as well.

Committee members in these organisations can often have a harder task than their counterparts on big company boards. Here boards comprise people from a wide variety of backgrounds; sector specialists, representatives of funding organisations, local or national government representatives, and many others. Unlike on big company boards, many will come from backgrounds where pay is highly structured right to the top of the organisation. In some of the smaller organisations executive pay is definitely not in the fat cat league and can be well below that of some board members. Very few board members in this sector have any experience of individual-based pay. Whereas commercial organisations can link pay to audited business metrics success, in this sector, can be much more complex to quantify.

All these factors can lead to an over-cautious approach being taken, especially when it comes to bonus or incentive pay. While the world is pre-occupied with working out how to restrain City bonuses this is a sector where linking executive pay to performance is often viewed with suspicion and seen as too difficult.

Communicating the reward package

One aspect of reward that came up several times, from both speakers and delegates, in this week’s Reward Forum seminar was that of communications to employees about the true extent of their reward package. Never easy, but charities and voluntary organisations (the focus of the seminar) can have their own set of difficulties in this area.

In many cases employees are personally and emotionally involved with the organisation’s work in a way not found in the private, or even public, sectors. This, together with their typically longer service, can lead staff to assume a greater right to have their say, if not their way, on matters of pay and conditions. Coupled with, in many charities, a workforce that is geographically spread this makes getting the message across more than usually difficult. In particular, all those non-pay benefits, terms and working conditions can be taken for granted and their actual cost, or true worth, dismissed. This is often accompanied with an exaggerated view of what is on offer in the private sector: all contributing to a general feeling of dissatisfaction.

Many organisations in the sector are some way off introducing a full-blown total reward system but that is no excuse for not trying to get the message across. There is lots written on this subject but one key factor is language. Avoid HR speak. For example, avoid the word ‘reward’ in communications to employees. This is another of those everyday words that HR has appropriated and assigned a different meaning to. It is fine amongst us professionals but to most people a reward is something akin to a prize and certainly nothing contractual. Talk about ‘pay and benefits’ or the ‘employment package’.

One element that can always cause trouble is not coming clean about where you position yourself in the pay market. Aiming to pay at around the median is sound practice for many charities but do your staff understand this? Or do you have to explain this means you expect their to be higher payers every time someone runs into HR waving a better-paying job ad? But do not talk about the median. It is a well-known fact (well, an urban myth at any rate) that only 30 per cent of the population know what a percentage is so guess what percentage understand ‘median. Just say you pay around the average. It is only a white lie.

Third Sector seminar

To a CIPD Reward Forum seminar this week. The session focused on the voluntary sector under the title of Managing Reward in Turbulent Times. I expect that nearly all conferences and seminars over the next few months will be re-badged under one recession-related umbrella or another. In practice the downturn has happened so quickly and so recently that all that really emerged in relating to the recession was a general level of nervousness. In practice, that did not matter and we had a worthwhile seminar about reward challenges in the sector. One element that has changed since previous recessions is the very much higher level of government funding going into the sector. Some of this is for new services but much is to pay for work that previously fell to public sector bodies themselves. Perhaps this will ameliorate the effects f teh recession for some.

In terms of reward structures generally the sector has its own range of problems; but it is also very diverse and gneralisations need to be avoided. I will pick up some of the thoughts generated by the seminar in subsequent posts.

The Third Sector

Made contact recently with PrimeTimers an organisation that aims to bridge the gap between business and the ‘third sector’: charities, voluntary and community groups, and social enterprises – not-for-profit organisations generally. Established in 2001 the founders of PrimeTimers spotted a need to provide guidance to individuals with strong private sector backgrounds who wanted to move into, or give help to, the charity sector. They provide guidance, information and support to interested individuals about the sector and its opportunities. In turn they provide a range of services to the sector including interim managers, volunteers, trustees, and part-time or consultancy support.

The definition of third sector is somewhat confusing and not entirely consistent (but more consistent than that for Web 2.0 – see previous post). Obviously it includes those organisations, ranging from small groups of volunteers up to the big boys (sorry – and girls) such as Oxfam and Shelter, that spring readily to mind as charities. Social enterprises (a fairly recent coinage, I suspect) are harder to define but are organisations with a community purpose. There is a good definition on the Cabinet Office website (http://tinyurl.com/4h9c7r). NCVO, the National Council for Voluntary Organisations, is another source of information on the sector.

When you move on to the wider not-for-profit sector life becomes even more confusing. As well as bodies such as museums and art galleries this includes companies limited by guarantee that operate in a fully commercial way but do not have shareholders and are committed to use surpluses for charitable purposes. Often, they are working in service sectors comprising both profit-making and not-for-profit organisations. A good example is the youth sector. Back in the mid-90s careers services (then run by local authorities) were put out to tender. Some stayed with local authorities, some went to fully commercial organisations and others to not-for-profit companies; a mix that then carried through into the Connexions partnerships. As with Connexions, many in this sector are spending or distributing government funds.

Overall, a secor with much going for it.