Does Brexit mean reward is broken?

The impact of income inequality
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As reward professionals consider the impact of Brexit on reward, I would argue that the real question is ‘how did reward impact the decision and what should we do now?’

The Brexit outcome is viewed by many commentators as a symptom of social division and lack of trust.  A demonstration of “deep frustrations at income inequality”. Forbes

Income inequality is divisive. 

On the one hand, there’s high executive pay.  The High Pay Centre report FTSE100 CEOs earning over 180x the average worker. 

A recent PwC report highlights that two-thirds of the population think top pay is too high.  They warn: "We need to find a way to respond to public concern about executive pay, or matters will be taken out of our hands."

There are, of course, arguments for competitive executive pay.  But with 4 out of 5 bonuses above target performance and only a few examples of significant shareholder dissent there’s room for more discerning decisions to be taken. 

Regulation is on the cards.  Theresa May has set out her stall on executive pay including binding votes, employee representation on boards and executive pay ratio reporting. 

But that’s just addressing part of the challenge.

On the other hand, there's low pay levels.  The Living Wage is set at what is required for a basic standard of living. Yet 23% of UK employees  earn less than this. A figure that has risen for three years.

PwC conclude that: “it’s time to focus on pay and opportunity for ordinary workers as much as on pay at the top”.

Again, we have regulations with the National Living Wage aiming to reaching 60% of median earnings by 2020. 

Despite calls from business lobbyists for restraint of future increases, the Resolution Foundation  said that “the Prime Minister should stick to her guns” as it will play a central role in her One Nation Strategy. 

So, should we wait for regulation or start to address inequality head-on by:

  • broadening our view of company performance from shareholder value to stakeholder value
  • rewarding executives for their performance not shareholder return
  • designing simple and transparent executive reward
  • devising reward systems that create value for all not just a few
  • investing in skills and technology to improve productivity and corresponding reward 

Only then will reward start to be seen as fair.

Income inequality is an area we are failing to address. Brexit is a clear signal that workers expect more progress.

 

At Verditer we partner with clients to make reward and performance management more effective.  Contact us to hear more about our approach to reward strategy, pay structures and bonus design.

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Image courtesy of Eric.