News
An end to the “bidding war” for top executive talent?
Published on 9th January 2012 by Sarah Alexander
Might this be the year when the unbridled war for talent – and its escalation of top pay – is finally abandoned?
You might think it ridiculous for anyone even to suggest this. After all, only two months ago IDS reported that main board directors of FTSE 100 companies had enjoyed an astonishing 49 per cent year-on-year increase in pay. According to figures in their own annual reports, they now took home, on average, £2.7 million a year each.For roughly the same period, the average increase for all workers in the private sector was 2.6 per cent.
Then the High Pay Commission included a table in its final report, Cheques with Balances, showing the escalation of boardroom pay packages and differentials in some top UK companies over the past 30 years. As an illustration, the top executive in Barclays or Lloyds was then paid 13 or 14 times the average level of pay in their banks. Today, their package is 75 times greater.
Any top-table director, reward consultant or remuneration committee non-exec worth their salt will quickly trot out the standard justifications for this. For example: despite recent traumas affecting the banks in particular, the market capitalisation of these companies and the profits earned have also multiplied over the period. They have been transformed into complex global operations requiring higher levels of skill and proven success in their leaders. Some are competing for top executives in a global market where the premium rate is set by the unashamedly elitist Americans. This has been the front line of the war for talent.
All of which is true – to some extent. It’s also clear there’s been a significant element of self-serving hype, unaccountable decision-making and the sort of leapfrogging once so beloved of trade union partisans.
Most organisations continue to pay lip-service to the principle of relating pay to performance. But the reality – as one of the best academic commentators on reward, Jonathan Trevor, points out in the January issue of People Management – is that this hyper-competition for top talent has actually weakened the relationship between senior executive pay and performance. It has also increased cynicism and reduced engagement among staff more widely.
Cameron’s intervention on top executive pay has raised the political temperature, even in advance of the banks issuing their annual bonus statements. Business secretary Vince Cable is now expected to publish proposals within a couple of weeks that would require the approval of shareholders for boardroom pay packages. Increasingly, institutional shareholders have been insisting that companies link executive pay to results more effectively, and the government seems determined to give them more teeth. For these political and business reasons, the present approach to top pay is unsustainable, and many senior HR people will have been laying the groundwork for change.
It may seem a subtle change of emphasis, but renewed attention to the relationship between pay and performance, and to the importance of motivating the many rather than just the few, would mean that the bidding war for talent has finally been abandoned. Not before time.