A fresh perspective on how to boost Employee Engagement levels and the role of Non Executive Directors and Remuneration Committees.
As published in Executive Compensation Briefing - July 2021
Paul Hunter, Principal at People. Performance. Reward. guides us through the benefits of action in this high-profile area.
Context
The 2017 Corporate Governance Reform whitepaper introduced and brought to the fore the requirement for greater formal ‘employee voice’ for UK organisations. Principle D of the UK Corporate Governance Code states: ‘In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.’ The code did not however go so far as to require organisations to put employee representatives onto the Board, or another similar governing body, but instead outlined three possible routes that an organisation might take in order to comply: putting a Non-executive director (NED) on the board to represent the workforce, appointing a director from the workforce, or the establishment of a properly constituted workforce advisory panel.
Looking at evidence from a broad spectrum of FTSE 350 companies, it appears that the responses have been mixed, although, where action has been taken, by far the most popular option selected is that of the designated NED. Detractors have referred to this as the ‘path of least resistance’. Interestingly, around one third of FTSE 350 organisations have not chosen to adopt one of the three recommended remedies, preferring instead to rely on ‘already established and in-place’ employee voice processes and mechanisms.
Evidence from other markets
In a recent comprehensive study on trends in global employee engagement[1] the UK tracks somewhere near the middle of the sample of 25 countries. Perhaps more importantly, the trend in employee engagement over the past three years is flat in the UK, and shows no improvement. Whilst we must acknowledge that employee engagement is indeed a broader topic than just employee voice, the lack of any improvement remains as a stark reminder that more could be done in this regard.
Evidence from standout Global organisation, those who routinely score significantly higher than average on employee engagement, highlight the following areas of strength that relate closely to employee voice. Organisations like Salesforce, and others with an enviable employee engagement record, all focus on the following key common aspects of engagement:
Accessible leaders
Senior leaders connected to the operation
Time with senior leaders in open forum type events
Time spent by senior leaders actually in the business
Prompt issue identification and resolution mechanisms in place
These activities appear to show an encouraging and consistent positive impact on higher levels of employee engagement.
UK Market Practice
The majority of companies in the UK have adopted one of two approaches in regards to employee voice requirements:
1. The designated NED route; or
2. Reliance on existing processes and structures
Where companies have chosen to rely on existing structures, these have typically been though existing employee forums, works council or trade union forums, and others, typically supported by perioding employee engagement surveys.
Where organisations have gone the designated NED route, the application has again been mixed. Across the FTSE we see examples of all or a combination of the following, inter alia:
Site visits
Town hall meetings
Engagement with senior HR colleagues
Input on the engagement survey
Panel discussions, think tanks, round table events, sales conferences and appearing at other significant company events with an engagement or employee focus
The approach itself has also however come in for criticism from several quarters. The key criticisms of how this approach has been adopted can be summarised as follows:
1. A number or organisations have approached the exercise more as a ‘tick the box’ type of exercise. Provided that enough evidence could be provided of formal employee engagement events and activities by the designated NED, and that a designated NED had indeed been formerly appointed, the box on employee voice could be ticked, but without material benefit to staff or the organisation
2. In many cases the designated NED was deemed to be inappropriate in having little or no previous experience with employee engagement or the wider HR practice in general
3. Including an additional portfolio to an already under resourced NED, especially in large or complex organisations, was an insufficient response to generating and interpreting meaningful input from employees across the spectrum
In addition, another criticism is that regardless of the approach taken, many organisations did not invest much time in engaging with employees on how they would best like their voices to be represented. This must surely go down as a big missed opportunity to get the employee voice conversation off on the right footing.
Importance and impact on the firm
Beyond complying with the code (both in spirit and practically) the adoption and implementation of strong channels for employee voice offer the organisation several benefits, and will also allow it to better mitigate reputation and other risks. Firms that perform more strongly on employee voice will see benefits in all of the following areas:
Early indicator on changing market, customer or competitor dynamics
A source of innovation and new ideas
Improved employee productivity
Staff and skills retention
Culture
Conversely, firms that perform poorly will expose the organisation to additional risks in the following areas:
Lower engagement and overall productivity
Pay (Gender pay, living wages and other pay equity issues)
Employee perception and reputation risk
Whilst the code prescribes a minimum level of compliance and co-operation, a well thought out and well implemented strategy around employee voice will drive benefits across a broad spectrum for the organisation, including significant benefits outside of the traditional RemCo sphere of influence or remit.
The way forward
It is clear that whilst some work has been done, there is still a lot more to do in order to promote employee voice in organisations across the UK. The benefits are clear, and to some extent so to is the path forward. A part-time, periodic, box checking exercise will not drive engagement in the right direction. Evidence for the period 2018 to 2020 confirms this. What is required now is a re-think and a fresh approach to this critical task. Whilst the objective remans within the remit of many RemCo’s, it is clear that the issues impacted extend far beyond just pay. A combined and co-ordinated approach by senior leaders is required, with time spent in the operation and open access to these leaders appearing to be two of the key elements to successfully cracking the employee voice challenge in 2021 and beyond.
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