Professional services firm PwC’s ‘Executive directors’ practices and remuneration trends’ report, released on August 5, finds that companies’ journeys to what it says is “fair pay” requires them to embrace inclusivity and diversity, as well as an internal culture of belonging.
In defining what is required to reach fair pay, PwC reward analytics head Andreas Horak says there are four basic reasons why fair pay is a critical business aspect that needs to be dealt with, but primarily fair pay is “just the right thing to do”.
Fair pay, says Horak, should come irrespective of what benefits will be obtained from a decision-making perspective, and should nonetheless be regarded as a critical outcome that will be achieved in growing the value of a business and the making of more sustained solutions.
In addition to fair pay, there is a requirement to provide every employee an equal opportunity to participate in building a business. This principle, he says, is endorsed by embracing diversity and inclusion – thereby allowing the seats around decision-making tables to be representative of a group of diverse individuals and effectively making sure businesses develop a culture of belonging.
“Everyone must feel they are there for a specific purpose and that their contributions will be heard and valued.”
Horak adds that businesses embracing diversity and inclusion need to go beyond proverbially putting such candidates at decision-making tables. In truly embracing diversity and inclusion, he says, businesses need to foster a sense of belonging and cultural development.
However, Horak says implementing diversity and inclusion practices into a business starts with the management team of such a business and not with the executive team.
In this regard, he says business management has to drive and echo the principles of diversity and inclusion, while executives should be leading from the front by indicating they are in support of such principles.
A second reason why fair pay is critical in a business is because it provides for good business decisions in terms of having a diverse set of people and an inclusive boardroom, says Horak.
This will enable a business to make increasingly robust decisions that should, in the long run, culminate in better and sustained value for the organisation, he suggests.
The report also outlined the factors of environment, social and governance (ESG), which Horak says should be leveraged to build trust between the business and those it impacts.
Although ESG has been around for the past decade, he says it has become more prominent over the past five years, with implementation becoming so prevalent that it is currently built into the “DNA” of many modern businesses.
Horak says ESG can no longer be regarded as simply a compliance measure and he encourages businesses to start showing, from a regulatory perspective, an awareness of ESG matters.
“Building trust through ESG effectively means building trust with a wider stakeholder group, including customers, shareholders, shareholder activists and any other consumer or client of the business, [as well as in] many instances also with the government,” he says.
However, Horak says grappling with ESG can be challenging for some businesses that may approach the subject in the wrong manner.
In this regard, the report identifies four dimensions regarding ESG, and how, all things considered, ESG provides for a realistic expectation that it must form part of a business’s executive performance scorecard.
Also, he says ESG must be built into how a business measures its management and executive team’s performance, in addition to the financial measures they are responsible and accountable for.
“The four dimensions we identified are effectively input versus output factors. It is really important to ensure that first of all, you are aware when you need to pull a lever to have significant input in your business and what sort of output that will deliver,” says Horak.
In this regard, ESG, where implemented wrongly, can lead to businesses setting ESG targets that effectively achieve certain goals, but “miss the point”, he says. “This is why the input versus the output equation becomes so critical.”
As such, Horak says, businesses need to evaluate where they can have the most substantial impact with their ESG targets.
The second dimension PwC identifies to be critical to ESG is identifying whether ESG deliverance should be part of a specific individual’s key performance indicator, or whether it must be incorporated within a business’s broader business scorecards where everyone is working towards a common goal.
“We anticipate that businesses would need to have a combination of these two,” he says.
Weighing up the long-term incentives against a yearly bonus is the third dimension.
The final dimension that becomes really critical to successfully implementing ESG is the need to identify the difference between an ESG underpin against what is a scaled target.
“An underpin is something that you are required to do, or it’s like a ‘hygiene factor, but it will not result in getting paid more for it – it is part of your job, it is not part of your performance,” explains Horak.
Conversely, a scaled target means it is a tangible output that has to be prioritised and delivered on. “To the extent that these targets are delivered on , [a business] will be rewarded appropriately,” he says.