I have a secret - I dont like remuneration committees but I know they’re vital

So how can you navigate them effectively?

“I want you to agree to  an absolutely obscene contract for me, if you're not being harangued by shareholders for the decisions you’ve made then you haven’t done a good job and I will feel let down and we will have a huge problem”. With these inspiring words this normally mild mannered chief executive slammed the phone down on me and left me to deal with his remuneration. Not for the first time, I questioned why on earth I had agreed to become remuneration committee chair. Surely there is no less rewarding position on a board?

Pay is making headlines again right now. In the last few weeks,  there have been public shareholder revolts at Pearson, Ocado and Metro bank, let alone the high stakes standoff between the government and the nursing unions.

The chief executive of the London Stock Exchange, Julia Hoggett, has called for the bosses of UK companies to be paid more in order to match their counterparts in the US. This age-old debate raged on when her comments were criticised as “a bit deluded” by the High Pay Centre, a thinktank that tracks chief executives’ pay. 

Of course, there are many angles from which to look at pay. The landscape looks wildly different in a global public company to that of a small start-up. However, there are common themes. I have chaired boards, chaired remuneration committees and founded small and big organisations -  in every one of these different settings, there are three observations to which I keep returning. 

 The first is the most overarching and definitely the most exhausting  - high emotions. It is somehow inevitable there are often  strong views on both sides of the negotiating table but it is much better to try and keep them away. At the very least, as the person in charge of setting pay,you should try to stay calm and yet this can sometimes prove elusive. I watched a remuneration committee chair of a mid size private company become more and more vexed by the process of arranging the newly recruited CEO’s total package. At one point he even shouted “BUT THAT'S MORE THAN I HAVE EVER EARNT”. Some angst on the part of your employee can surely be forgiven as it is a stressful process to go through, but as the employer it is vital to put your own personal situation to one side. Less is definitely more on the volatility and agitation front.

The second is the benefit of staying in touch with the latest trends. New ideas and creative thinking can be helpful if you're trying to keep top talent or recruit it in.  At the moment personalized packages are all the rage. Recognising that employees have unique needs and preferences, many organizations are moving towards offering more tailored contracts. Some of the pick n mix bits include flexible work arrangements, additional vacation days, training opportunities and various health  benefits. 

But it can feel tricky to install new or more creative compensation approaches. Certainly in public boards, consultants often advise you about shareholder reactions and seem determined to minimise anything perceived as risky or too unusual. In my experience, it’s worth pushing and of course, talking to and debating with shareholders directly. The phrase “war for talent” is overused but for some roles, it’s very real. Imaginative thinking is vital if you want to ensure you will get the right person for a role for which there may be very few or very sought after candidates.

As inspiration, EcoSolutions, an eco-friendly product design firm, takes a different approach. Their  system is rooted in a commitment to sustainability and social responsibility because this particularly appeals to younger employees who are making first job choices. They have implemented a more egalitarian pay scale, capping the ratio between the highest and lowest earners and allocating a percentage of profits to a communal bonus pool. Each one of these are not revolutionary ideas but taken together, the company has made an unusual public, open commitment to its present and future employees.

Finally, it is always worth focusing on ownership and not just salary. As we have seen from the headlines about John Lewis and the noise around Chair Dame Sharon White’s potential decision to end the mutual ownership structure, this stuff matters. 

 I have spent hours wrongly negotiating a 2 or 3% uplift in someone’s salary when I should have been negotiating either a higher chunk of  equity or a performance bonus. There are a bunch of schemes in the U.K. that you can use from Employee Management Incentives to Company Share Plans to growth shares. Getting into the details of what works for you is time well spent as they can be complex and different schemes have different consequences. 

Whatever your capital structure, and even if you do not have obvious liquidity in your organisation’s shares, incentivising people for ownership of an outcome is also powerful. For example, splitting a bonus based on the  strategic results such as reaching net zero, achieving diversity targets or achieving a certain operating margin.

I didn’t manage to deliver on the obscene contract that my overwrought colleague was looking for in that frenzied phone call. I’m thankful that our relationship is still intact and, candidly, even more thankful I no longer have to chair the dreaded committee.