‘How growing gap between boardroom, workforce demotivates staff’
A New report put together by United Kingdom based Chartered Institute of Personnel and Development (CIPD) has blamed growing gap between boardroom and workforce as major factor responsible for the demotivation of staff.
According to CIPD, the upward “momentum of chief executive pay” and reward in the UK’s largest organisations has reached a crisis point.
CIPD explained that the development “does not clearly correlate to personal performance or business outcomes and this is having a significant impact on the motivation levels of the wider workforce”.
The research, which includes a survey of employee attitudes on Chief Executive Officer (CEO ) pay, an in-depth literature review and focus groups and interviews with members of the finance, Human Resource (HR) and investor communities, explores the behavioural factors that are causing executive pay to spiral and the impact that this is having on the workforce.
The employee survey, highlights that seven in ten (71%) employees believe CEO pay in the UK is ‘too’ or ‘far too’ high,
Six in ten (59%) employees say the high level of CEO pay in the UK demotivates them at work, more than half (55%) of employees claim the high level of CEO pay in the UK is bad for firms’ reputations,
45% believe their own CEO’s pay is too high, with a further 30% saying they don’t know and just 4% say their CEO’s pay is too low.
The report revealed that only a third (32%) of employees agree their CEO is rewarded in line with their organisation’s performance, with two-thirds saying they disagree (38%) or don’t know (29%).
CIPD reward adviser, Charles Cotton, said: “The growing disparity between pay at the high and lower ends of the pay scale for today’s workforce is leading to a real sense of unfairness which is impacting on employees’ motivation at work. The message from employees to CEOs is clear: ‘the more you take, the less we’ll give’. At a time when the average employee has seen their salary increase by just a few percentage points over the last several years, we need to take a serious look at the issue of top executive reward.
It’s crucial that chief executive reward packages are simpler and more clearly aligned to both financial and non-financial performance measures. These should include how their leadership impacts on critical outcomes such as employee wellbeing and engagement, accountability for culture and behaviour, and workforce development, all of which are vital underpinnings of the long-term health of both people and business.”
The report highlighted the challenges and how they can be addressed, noting that CIPD recommends that the Government requires all publicly-listed companies to publish the pay ratio between the CEO and the pay of average full-time employees .
The report said: “This will help encourage accountability and prompt a greater focus on this issue among key stakeholder groups such as investors who can help to drive change and hold businesses and senior individuals to account.
Overly complex performance measures: The report suggests that significant changes need to be made to how bonuses and long-term incentives are structured and why they are paid out. Both of these forms of variable reward tend to be overly complex, and disproportionately focused on financial goals rather than being linked to other outcomes and stakeholders interests, including those of the employees.
“In addition, existing long-term incentives may not motivate because they are predominantly linked to financial measures, which are often affected by factors outside the control of CEOs, such as the economic cycle”.
Making reference tp powerful personalities, the report said: “ The CIPD recommends that organisations increase their focus on ensuring CEOs bring a balanced leadership style, appropriate to the culture and context of the organisation. The report also highlights that top leaders will tend towards more overly confident and assertive behaviour profiles, which also makes them adept at negotiating a higher pay and reward package.
“However, it’s also noted that the real driver in these cases is more about status and recognition than it is about the need for absolute amounts of money. Reward packages should therefore encourage individuals to strive for industry recognition or impact on wider societal goals, for example, rather than simply having the biggest pay packet amongst their industry peers.
“Too much focus on the top: The research suggests there should be less focus on disproportionately rewarding the performance of key individuals given that, where CEOs promote shared or distributed leadership, there is likely to be better overall team performance”.
Cotton continues: “It’s time to fundamentally rethink CEO pay. Too often, high reward levels are explained by the power and personality of the CEO, the make-up of the remuneration committee and the need to compare favourably to existing market rates, rather than clear measures of individual and sustainable and balanced organisational performance. There’s also very rarely any ramifications for poor performance. As a result, reward has just continued on an upward trajectory and as many businesses seek to restore trust from their employees, customers, and communities, it’s time to address the issues and challenge the direction of travel.
“Behaviour follows the measure; we need CEOs to work to a new scorecard that encourages positive, motivating behaviours and success beyond financial performance. Without the right checks and balances, businesses will struggle to break the cycle and this will continue to have an impact on workforce morale and employee engagement.”
Director of the High Pay Centre, Stefan Stern, according to CIPD welcomed the new research, saying “CEOs are employees too. But excessive pay packages mark them out almost as a different species. If we are really ‘all in this together’, the gap between the top and the rest of the workforce should not be so high. Outlandish pay sustains the myth that a single, heroic individual is somehow running a big business on his or her own. That’s simply untrue. Leadership matters, and good leaders should be well rewarded. But the workforce does the work.”
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