Brexit: implications for reward

We are leaving, now what?
Breaking Away Brexit

You may have been as surprised as I was to hear the outcome of the EU Referendum.  As we start the lengthy process of unpicking what Brexit will mean in reality, here’s some thoughts on the implications for reward.

Pay

The initial uncertainty, and volatility of stock markets, will bring caution.   As consumers spend less, companies postpone investment, and growth forecasts are lowered, pay increases will be less affordable and pay growth will slow.  

A huge aspect of our decision to leave the EU is the freedom of movement of workers.  With 7% of the working population citizens of other EU countries, having to potentially replace them would increase competition for talent. 

The winners will be those with a reward strategy that includes wider aspects of the employee deal such as culture, flexibility and ongoing recognition

Significantly, the leave vote has highlighted the deepening frustration with income inequality (Forbes).  Expect more pressure and protest votes when it comes to executive remuneration, and perhaps requirements to report pay ratios.

Bonuses and share schemes

Volatility in the economy and movement in exchange rates will effect performance targets, bonus pools, and LTIP values.  This will prompt many to review bonus structures and executive packages to ensure they are operating as intended with likely payouts that are reasonable and affordable.  

The extension of share plans to UK employees could become administratively more onerous with the risk of UK-based employees being excluded from international share-based incentives. But Brexit could also bring greater flexibility for the way plans such as the Enterprise Management Initiative are structured (Burgess Salmon).

Pensions

Stock market movements will affect the value of pension funds. 

A short-term fall will impact the value of DC funds and could cause those close to retirement to postpone their decision. 

A longer term fall will increase DB scheme deficits and funding this (alongside increasing auto-enrolment contribution levels) will place further strain on pay budgets (CIPD). 

This has implications for financial education and wellness.  An area already becoming increasingly important for employees and employers.  

Legislation

In theory, the UK could modify or abolish employment law derived from EU legislation. 

The reality is many regulations are deeply embedded in UK work practices and already incorporated into primary UK legislation e.g. equal pay, redundancy pay, minimum wage and discrimination.  Those, such as TUPE, working time and holiday pay may be open to change but much of the rationale behind them already stems from wider social and technological changes. 

The highly-regulated financial services industry may welcome the ability to fine-tune EU regulations to UK needs (PwC).  Although malus and clawback provisions have already been incorporated into the Corporate Governance Code, the FSA unsuccessfully challenged the bonus cap through the ECJ.  It will be interesting to see if this is re-visited given the current climate.

Opportunity

Nothing will change immediately.  Under the Lisbon treaty we have up to two years to work on the finer detail of the break. 

What is clear is that “the vote is another opportunity for the profession to re-examine the design of organisations, work and jobs to ensure that employers continue operate as effective and economically as possible” (CIPD).

 

At Verditer we partner with clients to make performance and reward more effective.  Contact us to discuss your reward strategy or executive packages.

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Photo: Breaking Away by Paris Vega.