Two significant items grabbed the headlines here in the UK this past week. Time alone will tell just how significant they prove to be but their timing is definitely on the wrong side of ironic, coming as they do in the same week that St Paul's Cathedral was closed for the first time since the blitz of the World War 2 due to the "Occupy Wall Street" anti-capitalist protests. Certainly both are likely to have a major impact on employee engagement.
The first was a leaked report that the government is proposing to increase the period before an employee can make a claim for unfair dismissal. They say this is a job-stimulation policy because too many unproductive people are retained because existing legislation makes it impossible for management to dismiss them. As a result better qualified, more willing workers are unable to replace them!
This would be an asinine move by government and really a case of fools stepping in where angels fear to tread. Why? There are several reasons actually.
- The relationship between management and employee is a personal one. As such it is shaped by behaviour and no legislation can control human behaviour.
- You know as well as I do that the problem is not usually with people in the first year of a new job. New hires are nearly always trying to prove themselves. Disengagement is the consequence of perceptions that accumulate to make people disgruntled, disenchanted and disillusioned over the years. And it is a disease that spreads poisoning the atmosphere for those around them.
- The timing is potentially a political disaster in the face of coalition cost-cutting.
- It is a tacit admission that management is incompetent. But worse, it also implies that management is incapable of redressing this on its own.
I am sure you can think of others. For me the last is the worst - particularly from a government that is supposed to champion non-interference in a free market.
The second item was the report that remuneration for directors of FTSE 100 companies increased by an average of 49% in the past year. This exceeds even the 43% for CEO's who earned an average £3,855,172 last year.
Of course this is petrol on the flames of the anti-capitalist fires. But you need to be very careful here, because averages are always dangerous, and even the researchers who uncovered this statistic warn of the need to use the median rather than the average, because the average is too easily distorted by one or two exceptional cases. This is very clearly the case when the top 2 earned about £18 million each! In fact the median was only 16%. Even that seems disproportionate in these tough times but it does not make for the same provocative headlines.
Anyway I decided to try to put these figures in context. Consequently I sacrificed a few hours to conduct my own research see how these companies had performed and to what extent these increases could be justified. The results were certainly very interesting. Let me give you a few insights.
Per their latest annual consolidated income statements (laboriously converted to £ at yesterday's exchange rates in 28 cases) the FTSE 100 companies earned before tax profits of £182,446 million which was a 27.4% increase on the previous year. Coincidentally the median improvement was also about 27.4%. The after tax profit total was £134,783 million or 25.5% more than the previous year and thus indicates a contribution to the national exchequer of £47,663 million or 26.1%. Thus the median increase to the directors of 16% would not seem too inappropriate. (However, you might also be interested to know that the top earning CEO's companies were 13th and 21st in the profit before tax table, and 8th and 68th respectively in the change in profit before tax table with improvements of 331.9% and 12.9% respectively.)
So how does all this link to employee engagement? Well, as part of this exercise, I also looked at the number of employees that these companies had. I was only able to get figures for 86 out of the 100 and in some instances these were a year or two old or just approximate numbers. However, the world wide employees for the companies where I was able to get numbers totalled an incredible 5,415,122. So just think about it. There are somewhere in the region of 6 million people who contributed to these results. How do you think they feel about these increases - especially when they don’t anything like the same sort of increase?
So do you really think you are going to win any employee engagement battles in the face of such earnings disparity? Admittedly this is only the top 100 companies on the UK stock exchange, and hopefully this is the exception rather than the rule. But if you are working in an organisation where your top people get such disproportionate rewards relative to the rest of the organisation do you think you will ever resolve the problem?
No wonder capitalism is becoming a lighting rod for protest. And with reports like this it will only get worse. Things are going to have to change if we are ever to see the productivity improvement and the economic prosperity that comes with it.