Last week’s Channel 4 programme, ‘Show me Your Money’ on the experiences of the staff at Pimlico Plumbers, certainly made interesting – and for HR professionals, thought-provoking – watching. Charismatic millionaire MD Charlie Mullins set about creating a fairer pay system, not with a complex HR bureaucracy of job evaluation and pay grades, but by challenging staff to reveal their actual pay rates to each other and then negotiate any required re-distribution of pay to those who felt seriously underpaid.
The programme helped to fuel the discussion at a well-attended seminar I organised last Friday with Eversheds and the Institute for Employment Studies on the subject of Fair Pay.
The plumbers themselves, reportedly on £100k plus, deployed the ‘different market’ argument, which we are getting tired of hearing in defence of escalating executive pay differentials, to justify their premium over the much lower-paid call centre agents. But seeing well-paid manager Chris, who thought he was underpaid by £20k initially, giving up some of his salary to boost the low wages of catering assistant Tina, after spending a day doing her job, was genuinely moving. It suggests that such ‘back-to-the-floor’ experiences for executives, as well as greater openness on pay, would benefit many of our organisations.
The Channel 4 programme was actually repeating a genuine academic experiment in a manufacturing plant in the 1950’s which had a similar positive impact on the workforce. There has been a wealth of research since then to support the beneficial effects on employee engagement and performance of pay transparency.
The latest CIPD study, for example, analysing the results of their annual reward management survey, shows that maintaining secrecy over pay is directly linked with a poor employee relations climate. Aon Hewitt’s global engagement database similarly reveals a .9 correlation between employee engagement levels and the perceived quality of internal communications, as well as much higher ratings of pay fairness by staff in employers with high overall engagement levels.
At our Fair Pay seminar, Danny Blum from Eversheds described the latest BIS proposals to improve executive pay reporting, though as Professor Steve Bevan reminded us, they bring to mind Will Hutton’s comment in his review of fair pay published last year that “we need less disclosure and more transparency”.
The whole way in which we structure and describe pay militates against open communications and comparison. We express hourly paid rates for low paid workers, for example, and annual salaries for managers, along with the complex plethora of executive bonus and incentive schemes. The national minimum wage of £6.08 compares with the £1.01 billion that Barclays top 238 staff made last year, which even if you assume they all do a 70 hour week, works out at an hourly rate each of £1173 per hour. Fair?
Even without all this research, the benefits of pay transparency seem pretty obvious really, don’t they? Employees who are communicated with and understand how pay levels are set in their organisation, who see the relationships between job size and pay, who know that quality market data sources are regularly used to inform pay levels, who see the statistics to show that men and women are treated equally, and thereby feel they are fairly paid in relation to colleagues and similar work outside, and for the effort and results they deliver in their job, are bound to be more engaged to perform for their employer.
But our seminar audience supported the findings from EHRC research that indicate that many organisations adopt an ‘as-little-as-possible’ strategy for their pay communications. The majority still discourage staff from talking about pay with colleagues, give staff no information beyond their own pay details, don’t issue total reward statements, and don’t carry out equal pay reviews, never mind communicate the results of them. The government’s 2011 Think, Act, Report initiative to encourage voluntary reporting on pay gaps and other key human capital statistics, which Eversheds Audrey Williams described, appears to have disappeared without trace.
Scarcely surprising then that as IES research shows, most employees don’t understand nor appreciate their reward package, and so under a third think that their pay is fair. As American psychologist Virgina Satir put it, “feelings of worth can only flourish in an atmosphere where individual differences are appreciated and communications are open”.
HR professionals have to confront these head-in-the-sand strategies to pay communications in their organisations if we are to address the current recession in employee engagement levels, general cynicism over executive pay, and deliver improved productivity and performance from our paybill investments. Even Charlie Mullins was genuinely flabbergasted when his technicians came up with a range of cost saving ideas to help fund increases for their lower paid colleagues.
Why don’t the HR directors of the FTSE 100 companies repeat The Pimlico Plumbers’ experience by asking their chief executive to compare their hourly rate with that of their cleaners and see if they feel the relativities are fair? CEO pay rose by 12 per cent last year to an average of £4.8 million pa, or approximately £1500 per hour. Inviting them to give up one hour of their pay would almost exactly fund the £1538 difference in annual pay for one of their part-time cleaners to move them up from the national minimum wage, which the majority are on, to what the Centre for Research in Social Policy calculates to be a minimum living wage nationally of £7.20 per hour. Fair?