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Colborn’s Corner – How do we address executive pay?


Quentin ColbornRecent press comment on the relationship of pay in the executive sector to front line employees brings into focus the issue of relativities and fairness in pay. This week Quentin addresses what HR can do in trying to bring an understanding to a workforce of the need to pay high salaries.

In The Times of 6 November, Tom Bawden reports that the average pay of a FTSE100 Chief Executive is 98 times that of the mean salary of their employees. A startling figure, although put in context with the information that premiership footballers typically have a salary of 100 times the average worker. Unsurprisingly the data within this report produced the following comment from Brendan Barber of the TUC:

“It is hard not to conclude that this further huge rise in executive pay is more about greed than performance. The stratospheric levels of directors’ pay compared to the average wages mean that executives now live in a class apart, even from employees in their own companies. It is not just socially divisive, but bad for the economy.”

However despite this disquiet that is mirrored by a number of commentators, little action is being taken to peg back executive pay. True, remuneration committees probably take a more robust view of pay and there is more shareholder scrutiny, but there is still an inexorable rise in pay levels.

Within this column I don’t intend to discuss the moral and competitive issues surrounding executive pay, although there are some very real issues to be addressed. What concerns me more is the task that HR professional have in managing pay within their organisations when executive pay is perceived to be so high.

Many HR people at some stages in their career have been responsible for managing pay awards. For some this is a purely administrative role. There is little discussion with staff and the task is simply one of dividing up the available funds according to a perceived fair process. Yet for others pay reviews are the subject of intense negotiation with Unions or other representative bodies – that’s where the fun starts!

How do we defend large increases for bosses? In days gone by there was a degree of secrecy when it came to senior salaries, but for any listed company now senior salaries are a matter of public record – and therefore scrutiny. I think we have no option but to point out the reality of the market and the fact that to gain and retain high quality management a high price often needs to be paid. Of course the same is true when it comes to the likes of professional footballers – they will demand and receive salaries that would be attractive even to FTSE100 chief executives!

Where I think the high salary levels are not defendable and cause problems in gaining acceptance further down organisations is when it comes to ending the contract. If performance is not up to scratch most people accept that they cannot continue in a role and if the rewards are high then so will the demands placed on the job holder. But when the separation takes place accompanied by large payoffs for non-performance there is little understanding or acceptance of the position. While many of these payments are contractual, it indicates that remuneration committees are not sufficiently robust when it comes to negotiating CEO contracts. How many times do we hear of CEOs departing empty-handed?

I think that if we are to gain acceptance within organisations of the need for high rewards for senior roles, there needs to be the counterbalance of firm action for performance that is below expectations. Only then will there be seen to be something approaching a fair relationship between risk and reward.

How do you deal with executive pay within your organisation? How much of an issue is it when it comes to pay reviews? Let’s hear your views.

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Quentin Colborn is an independent HR consultant based in Essex who works with organisations to review their approach to employment relations and internal communications. Quentin can be contacted on 01376 571360 or via [email protected]

2 Responses

  1. Exec reward
    Executive remuneration should be clearly linked to the performance of the company and preferably in the long term. Executives should command high salaries for the high responsibilities they carry.

    As an independent HR consultant I do not advocate huge payoffs for under-performing executives as cost is key for any organisation. Executive reward, just like for all employees, should be fair and equitable.

    Executives should be remunerated through a range of different reward initiatives (both financial and non-financial) which should be aligned to both business and individual needs in order to be successful; this means a certain amount of tailoring.

  2. Exec remuneration
    Quentin is ‘spot on’ with his concern regarding executive payouts for not performing. Even as an Employers’ advocate, I find it reprehensible that someone at the coalface will be dismissed for not doing their job properly and the only possible compensation they might get is to hope the process is not done correctly and they gain from a personal grievance claim. On the other hand, we have had numerous examples in NZ where top executives fail to deliver and are handsomely paid to leave. And this is where I have no doubt the business consultants, mostly from large international HR organisations or even worse, from the international accounting bodies, are very much to blame. They are the ones who have convinced boards of the necessity to include such “exit” deals into executive remuneration. What a great message that sends to the troops?????? It seems to me they are more interested in the size of their consultancy fee than the future of HR.

    Well put Quentin.

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