Pay considering employment

Remuneration reports typically include a section dealing with “pay and employment conditions within the company,” which usually contains a generic statement about how the remuneration committee considers company-wide pay scales and employment conditions (as well as employee feedback) in setting executive remuneration. Rarely is there much more detail than this.

For the 2014 financial year, HSBC CEO Stuart Gulliver took home a £1,290,000 bonus and a share award valued at £2,112,000. Following the release of its 2014 annual report, it was disclosed that HSBC is allegedly planning to lay off 10,000-20,000 people this year. Since Gulliver took over as CEO in 2011, HSBC’s employment numbers are down by 47,000.

This leads me to wonder whether the remuneration committee considered the feedback of those 47,000 people, and the 20,000 who might follow this year, in setting Gulliver’s bonus and share award. I am sure that a few of those 67,000 former employees have some choice words for Gulliver and the remuneration committee.

I am not saying in any way, shape or form that companies should not be able to restructure, lay off employees, or change direction. Companies obviously need flexibility to adjust when things are not working, costs are too high, or a different strategy is needed. Companies must have the ability to grow or shrink as the case may be.

However, the sticking point is that while executives drive home in nice cars with hefty pay cheques, a large number of employees walk out the door without a job. Not through any fault of their own, but because management decided to change direction, restructure or eliminate a function it used to think was necessary. When management decides to create and fill a position in one year, and then eliminate that position later on, it begs the question whether the decision to create the position in the first place was a sound one. As a result of poor planning, an employee has now lost a job. If the job loss is a result of technological advances, one must ask whether those employees could not have been trained to do other jobs. Rarely does a technological advance take a company by surprise – there is usually some lead up to the decision to adopt and use new technologies that may allow a company to redeploy or retrain existing employees.

I hope these types of questions are being asked by remuneration committees when they contemplate “pay and employment conditions within the company.” If not, they should be. In an ideal world, executives would be encouraged to create even more employment, something all economies need to grow. This aspiration does not necessarily align with the interests of shareholders, who would prefer to reduce costs. However, boards must balance the diverse interests of all of the company’s stakeholders in determining what is in the best interests of the corporation, and an important stakeholder is the employee. Remuneration committees should consider overall employment levels within the company, and provide an explanation for why an executive continues to receive a bonus in the face of downsizing. Especially if that downsizing is not the result of an economic downturn, but poor planning by management.

Pay should consider employment – current levels, growth, and reasons for lay-offs. Until then, let’s hear some feedback from those 47,000 and counting HSBC employees.

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