Real Engagement!
Are you a Virgin?

Solving the Great Bonus Conundrum!

In what has been a very interesting week here in the UK, two things in particular have stood out for me (apart from THAT remarkable tennis match at Wimbledon!)

The first, included amongst the many measures to tackle public sector spending identified in the emergency budget, was the announcement of a commission that would look to restrict government department heads' pay to 20 times that of their lowest paid employees.

The second was that 6 senior employees of Network Rail, a non-government but publicly funded company, were to share a bonus of over £1.2 million between them, despite a government request asking them to "show restraint." BBC late night news reported that, despite areas of underperformance, the Chief Executive would receive a bonus in excess of £600K that would effectively double his earnings.

So in one instance you appear to have a constructive measure being taken to find a solution, while in the other you have the perfect illustration of the nature of the problem that needs to be addressed. If you applied the proposed solution to the Network Rail situation, it would mean that the lowest paid Network Rail employee would have to be earning in excess of £60K pa, or roughly 3 times the average national wage!

Extrapolate this across the whole economy and you can understand why employee engagement is the major problem it is. The good news is that it is forcing a major issue into the open.

The HR profession certainly should be questioning how it ever allowed situations like this to arise in the first place. That, however, is to look backwards, and serves little purpose. The only positive in doing so, is that it shows the folly of not giving HR the same strategic weight as other functions around the Boardroom table. Yet, it places the onus on HR to step up to the plate and prove that it warrants a place at the table and is up to the task. Strategic HR professionals should thus be alert to this state of affairs and be looking ahead and preparing for the consequences.

There can be no doubt that pay differentials will be coming under closer scrutiny. Strategic HR professionals need to recognise this and start finding answers to such questions as:

  • What pay differentials are justified? The government has drawn a line in the sand by suggesting that CEO salaries should not be more than 20 times the lowest paid. If this is not appropriate a strong case will have to be made for anything greater.
  • Is it reasonable to offer varying rates for incentives depending on your rank or salary band? E.g. If the CEO gets 100% of his salary as a bonus, does everyone else in the organisation also get 100%?
  • Is performance related pay even really appropriate in modern business where - as BP so clearly illustrates - organisational integrity demands greater strategic alignment?
  • Do you spread the pain of reduced executive remuneration over time? If so, how?

These are just some of the issues that strategic HR professionals need to be asking themselves. They contain the key to improving employee engagement and resolving the issues that have so recently come to the fore. Manage this properly and the place at the head table is assured. Who would have thought it, but the government has opened the door.

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