Amid rising prices, stubborn inflation, and soaring borrowing costs, it’s perhaps unsurprising that executive pay is attracting scrutiny. For CEOs, many of whom are focusing on steering their organisation through difficult waters, it is an unwelcome distraction but cannot be ignored.
The last twelve months has seen a host of executives hitting the front pages, including BP boss Bernard Rooney, who saw his salary double to £10million – 170 times that of the average worker.
Rooney is in good company, with FTSE 100 bosses awarded an average pay rise of £500,000 in 2022, an increase of 16%. Median pay rose from £3.4m to £3.9m. The CEO of AstraZeneca was the highest paid, with a salary of £15.3m, followed by Charles Woodburn of BAE Systems, pocketing £10.7m and making him the second highest paid CEO during 2022.
With the average salary of a UK full-time worker currently £33,000 according to the Office of National Statistics (ONS), unhelpful comparisons, and scrutiny, is unlikely to abate. The comparison is unhelpful for leaders in creating an inclusive culture, can hamper leadership goals and could even result in a change in leadership style, moving away from a positive, transparent open-door approach in favour of a more guarded strategy, which will serve only to alienate staff.
However, long-term, there is also a real risk that deepening scrutiny around performance and renumeration packages could discourage talented leaders from taking senior roles. We know that unwelcome attention around salaries can influence leaders’ willingness to accept prominent positions; especially when those roles are funded by the taxpayer, or within organisations that are known to have received taxpayer support, such as financial institutions. It’s an undesirable situation for both the business and the individual.
Unfortunately, it’s not completely unheard of for government ministers to be pulled into the furore around executive pay, extending a web of criticism and negative sentiment beyond the individual, drawing in the wider c-suite, the board and even its investors.
Against this backdrop, and with the economic environment expected to remain challenging into 2024, there is a real risk that talented leaders could steer away from the most high-profile roles. So, what is the answer? How can companies continue to offer competitive packages, attracting the best talent, without attracting unwelcome scrutiny?
For organisations and HR teams, it’s vital that, at a time when millions of ordinary people are struggling to make ends meet, executive remuneration is managed carefully and sensitively. C-suite leaders must be properly supported by both HR and the internal communications team to ensure that they are well prepared, equipped and accustomed to dealing with pay scrutiny.
Failing to do so risks the escalation of minor disquiet into a spiral of negativity and, potentially, a situation whereby leaders are forced to justify their positions, and their performance, to those to whom they owe no such explanation. Most leaders are very conscious of their reward in the context of their company performance, shareholder opinion, pay reviews awarded within the business and, of course, wider economic performance – and it’s right that they should be.
At a time of undue interest, particularly where there has been media attention, it’s important that businesses step back and consider the long-term outcome of any scrutiny and avoid making snap decisions that could carry repercussions for the future – particularly when it comes to talent acquisition. Where bosses have felt under pressure to forgo bonuses, or accept a cut in pay, it could well make the business less attractive to c-suite leaders in the future.
Would leaders be willing to enter the fray, or would they prefer to take a role elsewhere, where their position and pay will attract less attention? All the potential outcomes must be carefully managed, taking the utmost care with any decisions that could set a precedent; not just in terms of bonuses and pay, but in the way that the company responds to external pressure.
Asking CEOs to forgo bonuses for better optics is not an option and isn’t something that any leader would – or should – ever concede to. Work should, instead, focus on ensuring that remuneration packages for CEOs and other senior executives are clear and transparent. This should include thorough consideration of whether the reward is fair in the context of what has been achieved. Note that this does not equate to justifying salaries, merely being clear around the link between pay and reward in the context of the environment and often challenging roles.
It’s important that executive salaries are competitive if businesses are to attract the best talent (ironically, this is particularly true in roles where pay is scrutinised heavily, and pressure is high), but not tone deaf to the salaries within the organisation they lead or the economy they serve. Salary is only ever part of a package; the majority of c-suite executives will have negotiated long-term incentive share schemes that only pay out with growth in revenue or profits over several years. HR leaders must ensure that pay packages are weighted against the scale of opportunity, together with the risk and effort required to be successful within a particular role.
While there must be a certain level of acceptance by leaders that hefty pay packets are likely to attract unwanted attention – particularly during economic strife – they must never be put into a position where they are forced to justify their salaries or reward for the role that they perform.
HR teams can best support C-suites by ensuring that they are adequately equipped with the necessary skills and training to manage external scrutiny; particularly when media coverage is involved. This can be hard going on any leader and it’s vital that they are supported properly. Leaders will need resilience to be able to shake off the attention, while focusing on their role.
It is the role of the remuneration committee to consider whether a salary package is fair to shareholders and employees – it’s a delicate balance and there’s no doubt that it can be difficult. The dividing line will always depend on who the stakeholders are; taxpayers will be viewing salaries through a different lens to a company’s shareholders, who may be content to offer larger reward for larger returns.
However, it’s important to note that the renumeration committee is also responsible for setting pay scales for lower-paid roles; they will need to ensure that employees at all levels are paid fairly for the role that they carry out. It is the role of the HR team to listen to sentiment within the business and ensure that everyone feels valued, important, and appreciated in their own role.
All leaders understand the wider message that their reward packages can communicate, and the sensitivity with which it must be managed. In the context of a cost-of-living crisis, transparency and preparedness is the key to be able to tackle any scrutiny effectively, protecting both the individual and the business.
