Sizable pay deals for executives can attract negative attention, particularly in the current cost of living crisis. Yet the London Stock Exchange chief warns that low executive pay means the UK is seeing a talent drain. How does the Remuneration Committee (RemCo) balance interests that can seem conflicted?

We hosted a webinar to explore the issues and grateful to our expert panel:

• Kirsty Bashforth, Non-Executive Director at Serco, PZ Cussons and advisor and author on organisational culture
• Patrick Bradley, Chief People Officer at Australian-listed logistics group, Brambles

Click here to watch this webinar.

What makes a successful RemCo Chair?

Get reward right and it’s a powerful tool to shape culture and drive competitiveness. But the RemCo’s job is far from simple.  Steering a path through divergent interests, whilst keeping the right side of tight governance, requires diplomacy, resilience and strong problem-solving skills. Kirsty shared her insights into what makes a successful RemCo Chair:

• Having the right team around you; an excellent Reward professional, a sound RemCo consultant and a strong relationship with the Chief People Officer (CPO).
• Always checking in with the CEO before the RemCo meeting to avoid any potential misconceptions.
• Being crystal clear on company strategy – make sure the RemCo strategy is aligned and not sitting in its own silo.
• Realising that keeping everyone happy (in all honesty likely impossible) does not mean you are a good RemCo Chair – these two things need to be separated out. Likewise, understanding that making some people unhappy does not mean you are a bad RemCo Chair.

Kirsty shares that the role is rewarding but living with some criticism comes with the territory;

There are a number of stakeholders to manage and that’s what your role is.

What are the current challenges for the reward function?

Our live poll of talent priorities put building critical skills and competencies top, but a multitude of other issues also polled strongly including:

• Diversity, inclusion and culture
• Supporting the workforce in the cost-of-living crisis
• Labour shortages and recruitment
• The future of work – remote/hybrid working.

With his international perspective, Patrick felt labour shortages and the cost-of-living crisis were more of a problem in the UK than elsewhere as companies here face high inflation, relatively low growth and low unemployment; “setting targets over three years is hard given the volatility.” Kirsty spoke of the need to be flexible, pragmatic and more creative in setting long-term incentive plans

Kirsty agreed critical competencies are very much on the agenda as growing ESG and AI activities prompt companies to think deeply about what skills they will need, “remuneration ties into those big future strategic decisions.” There can be a challenge over how to reward what may be very niche roles; “you shouldn’t be a slave to the benchmark, you have to look at a range of factors,” said Patrick.

The future of reward in a highly governed environment

“So many rules and so little room to manoeuvre,” was Kirsty’s assessment of the reward environment with key stress points including:

• The sheer complexity of the governance system
• Balancing tighter governance with maintaining competitiveness
• Managing the interests of many different stakeholders
• Working with the demands of large investors
• Better alignment between CEO pay rises and the wider workforce
• Incentivising and retaining top talent in UK-listed companies
• Managing relationships with employees, customers and the media
• Potential ‘bleed over’ from EU and US governance legislation

Given RemCos have such limited wriggle room, could it be time to accept a lower shareholder vote? Our webinar vote was decisive – 87% said yes. But both Patrick and Kirsty noted this is a complicated issue. “The vote is made by the people who own the business; you have to listen to them,” said Patrick.

Nevertheless, Kirsty believes a trend towards lower votes could be on the cards. Kirsty said:

I am seeing RemCo Chairs beginning to get more comfortable with not expecting such a high vote because it’s almost impossible.

Ultimately, Kirsty says the RemCo Chair must deliver “the right answer for the company” through consulting with stakeholders and being totally transparent about the decisions they take. The future is also likely to bring a continued shift in reward focus. Patrick sees a pivot in reward motivations,

It’s not all about financial reward, people want to work for a company that has a strong purpose, has a value in society and can offer flexibility.

Kirsty sees a trend towards “a rounder package” with elements such as wellbeing and the working environment increasingly part of the equation alongside a growing move to link ESG to remuneration.

We would like thank Kirsty and Patrick for sharing their wealth of experience and also our many webinar attendees for their input and engagement. Here at Eton Bridge Partners, we are always keen to hear your views and share our extensive market insights with you, please do get in touch.