Legal lowdown: The CEO five-year sell-by date

Ex-Barclays chairman David Walker has put a sell-by date on CEOs, but how can you ensure this is managed in a legally-sound way?

Ex-chairman of Barclays David Walker has put an actual ‘sell-by’ date on CEOs, saying that once they have been at the helm for more than five years they should be dismissed. His reason was that they can become too dominant and influential and other board members find it difficult to challenge them.

Whether you agree with this or not, it does throw into relief the issue on how to deal with senior-level departures. A CEO has the same rights as any other employee and after two years’ employment they have a right not to be unfairly dismissed. Relevant fair reasons for dismissal are capability or conduct but (except for gross misconduct) both usually require a series of warnings before a dismissal notice in order to be a fair dismissal.

So what should you do if you’re concerned by Walker’s comments and the prospect of dismissing a long-standing CEO?

Realistically a company is not going to put a CEO through a lengthy performance management process. The law recognises that if the organisation is not performing then the buck stops with the person at the top. But if the business is doing well and the CEO is leaving simply because they have been there for five years then this is likely to be grounds for unfair dismissal.

Given that the current cap on compensation in an employment tribunal is £78,335 or a year’s salary (whichever is the lowest) a company may feel it is a small price to pay to get fresh blood in at the top. The real value for a CEO in these circumstances, however, is not in a claim for unfair dismissal but in their notice provisions.

To comply with the UK Corporate Governance Code listed companies should not give directors more than one year’s notice. Private companies should follow suit. The service agreement must dictate if this is basic salary only or basic salary plus bonus and benefits. Including these can significantly increase the amount payable to a departing CEO and these things need to be considered at the outset of their appointment.

The company will not want a departing CEO hanging around and so service agreements should include a payment in lieu of notice (PILON) clause and the ability to place them on garden leave if needs be. Failure to include these can lead to restrictive covenants potentially being invalidated if a company does either without a contractual right. Well-drafted service agreements will say that even if the business makes a PILON this will be done monthly, and the CEO is under an obligation to look for another role so will only be paid in lieu up to and including the point they secure another position.

While a blameless CEO should be treated fairly and with dignity, the organisation does not want to write a cheque for £500,000 only to discover that the CEO has stepped into a new and better-paid role. Bonus and incentive schemes are usually provided partly in share options. If CEOs are to be ousted in a no-blame situation then consideration will also have to be given to whether it is fair that they lose their shares. It will impact on recruiting a replacement if word gets out that this is how a well-performing CEO is treated, leaving the company exposed to a less effective replacement.

This article is published courtesy of HR magazine and was written by Beverley Sunderland (pictured), managing director of Crossland Employment Solicitors

Bridging gender gap would add £0.6 trillion to GDP

Deloitte research warns against conflating equal pay with the gender pay gap, and reports that 61% of the quarter of jobs that pay least are held by women

The UK could add £0.6 trillion (£600 billion) annually to its GDP by fully bridging the gender gap, according to a report from Deloitte.

The Trailblazing Transparency: Bridging the Gap report found the average pay gap is now 19.2% in the UK, with women making up 61% of the quarter of jobs that pay the least, and only 39% of the quarter of jobs that pay the most.

The research also warned against conflating equal pay with the gender pay gap. While paying men and women differently on the basis of gender for the same job is illegal in the UK, lower paid jobs are more likely to be filled by women, and women may be hindered in their career by other biases, the report explained.

Speaking at Deloitte’s Pay Transparency event, secretary of state for education and minister for women and equalities Nicky Morgan said that the business case for equality is clear. “It’s not just for women alone to fight for this,” she said. “We need you to address this pay gap so you can make the changes you want to see in society.

“Women who don’t feel valued [in your business] will simply look elsewhere – and who can blame them?” she added.

Discussing workplace culture in the report Emma Codd, managing partner for talent at Deloitte UK, stated that there will not be sustainable change at senior level without ensuring a company provides an inclusive culture. “A challenge for many diversity programmes is that they are focused on specific actions or programmes in isolation, rather than addressing the required underlying cultural shift needed to make a lasting difference,” she said.

Chartered Management Institute CEO Ann Francke, warned that gender bias in the workplace is still alive and well. The number of women in management positions “looks kind of like a pyramid,” she said, with a large number of women in lower management positions, some in mid-level positions, but fewest at the top. “Pay, on the other hand, looks like an inverse pyramid, with the small number at the top earning far more than those at the bottom. It’s certainly time to do something about this.

“Don’t be afraid to call out instances of gender bias,” she added. “It might not be intentional, but it starts that discussion.”

HR salaries have fallen since 2002

Research suggests that widespread adoption of the Ulrich model could be behind the decrease

The average full-time salary in HR dropped in real terms by 18% between 2002 and 2014, according to research from workforce management provider Randstad In-House Services.

Despite this, the function’s aggregate wage bill is rising as the number of people employed in the sector increases.

The pay squeeze does not appear to have been linked to wider economic conditions. In the pre-recession period of 2002-06 the average salary of a full-time HR professional fell 5.9%. During the recession, and in its aftermath, HR’s average pay packet fell by 7.2%. A further 7.8% decline was recorded post-recession, between 2011 and 2014.

Sally Cleary, managing director of Randstad In-House Services, said that HR professionals have seen their average pay fall “like a stone” since 2002.

“Gone are the days of highly-paid HR all-rounders,” she said. “Thanks to the wide adoption of the Ulrich model they have been replaced by less experienced and less well-paid HR executives who are masters at performing their own siloed function. The result is a more effective HR machine staffed with people earning less than their all-rounder predecessors.”

The researchers suggest that the widespread adoption of the Ulrich model could be behind the rise in the number of people employed in HR, but also the fall in average wages. “The massive increase in the industry’s aggregate pay since 2011 has been driven by an explosion in the volume of HR jobs,” Cleary said. “As the Ulrich model has been adopted so widely the profession has become more specialised and department-specific, while the number of roles in the sector has proliferated.”

SIGplc group HRD Linda Kennedy McCarthy said that the role of the HRD has changed in the past few years. “Formerly, those of us who have now progressed to the level of group HR director would have typically done a range of roles, possibly starting with HR administration/operations and ER roles, then working through some of the specialisms to reach an HR manager position,” she told HR magazine.

“While there is benefit in removing a lot of the pure HR administration from these roles – through automation, employee/manager self-service, and a shared service centre approach – there is also something to be said for gaining experience across a wide range of HR issues and understanding the basics before progressing to the more ‘strategic’ roles, which tend to be the focus of today’s HR business partners.”

However, she said she was not certain that the Ulrich model is behind the increase in jobs and decrease in wages.

“I think the Ulrich model has delivered mixed results, depending on how it has been implemented, and many of my peers are now looking at a slightly mixed model, which is not ‘pure’ Ulrich but meets their business needs,” she said. “It is interesting that wages appear to have gone down but it could be due to the compartmentalisation of knowledge and experience, which then leads to a narrower skillset and ultimately expertise. It would be great to try and correlate this data with causation factors and really understand what is driving it.”

FTSE 350 under review in women on boards drive

The review will continue from Lord Davies’ previous Women on Boards Review

Philip Hampton, chair of GlaxoSmithKline and former chair of RBS and Sainsbury’s, has been appointed to lead an independent review on increasing representation of women at the executive level of FTSE 350 companies.

Dame Helen Alexander, chair of UBM, will take on the role of deputy chair of the review.

The new review will continue from Lord Davies’ Women on Boards Review, which saw female representation on boards in the FTSE 100 rise from 12.5% to above the target of 25%. It will focus on building a pipeline for female executives and emerging non-executive directors.

Hampton said he was “delighted” to take on the role and wants to turn his attention to the FTSE 350. “I will focus on improving representation in the executive layer of companies, as well as maintaining the momentum on boards,” he said. “This means looking at the talent pipeline for female executives and emerging non-executive directors to ensure we create opportunities and the right conditions for women to succeed.”

Carolyn Fairbairn, CBI director-general, said that diverse voices make for better business decisions. “That’s why it’s right to focus on getting more women in executive roles, because they take daily decisions, shape and define strategy, and influence culture through the everyday examples that they set,” she said.

She also called for “a target of 25% female senior executives in major UK companies”.

Women and equalities minister Nicky Morgan said that while the UK has come a long way, businesses must do more to make sure women are able to fulfil their potential. “Having more women on FTSE boards allows companies to benefit from the enormous wealth of talent they offer, and means these women can act as powerful role models for the next generation of girls,” she added.

“I want to see an end to all-male boards anywhere in the FTSE 350, and much more progress at the executive layer where we know it has been slowest to date. Men have a critical role to play in this and I look forward to working with Sir Philip and his team on this incredibly important agenda.”

Hot topic: HR and the Sports Direct Scandals, part two

After an expose of the appalling working conditions in its warehouses, Sports Direct’s share price plunged

But what is to blame for a culture of endemic mistreatment – including paying below the minimum wage – consumers hunting for the cheapest products, or bad business practices? And what is HR’s role in fixing it?

Chris Rowley, professor of human resource management at Cass Business School, says:

“With the exposé of Sports Direct’s draconian working conditions leaving its reputation in tatters, the destruction of more than £400 million of its value, and a profit warning, the firm should think carefully how to respond.

So what has it done? The wrong thing. First, the rebuttals and review of agency worker T&C are naïve. They are mealy-mouthed assertions. The review is a sop; it cannot possibly be objective given its overseeing by the founder. Someone needs to appoint an independent person with the freedom and facts to produce an evidence-based and unbiased review.

Second, management has tried to shirk responsibility and blame unforeseen events rather than crass decisions and policies.

The company’s predicament is due to decisions of its own making, both in operations and HRM. These are not only around poor web presence, product mix and shambolic stores, but also the reputation damage caused by dreadful employment practices.

The financial implications of its HR malpractices are obvious. What could its new HRM look like? Rather than being involved in a ‘drive to the bottom’ with exploitative conditions and no more than begrudging legal compliance, it could take the moral high ground and operate ethically to aim to become an employer of choice with practices of respect, trust and motivation.

They could include setting out career progression routes from the wilderness of zero-hour contracts and agency working to permanent employment and pay rates that set sector standards. The ‘Big Brother’ surveillance and monitoring, control (such as banning the wearing of 802 brands), and rigorous searches are counter-productive. Workers deserve better in the 21st century.”

National Living Wage introduction – April 2016

The National Minimum Wage (Amendment) Regulations come into force on 1 April 2016. These Regulations bring into force the National Living Wage, which is essentially the National Minimum Wage plus a ‘premium’ for workers aged 25 and over. The aim is to achieve a National Living Wage of over £9.00 per hour by 2020.
The new minimum rates of pay for workers as from 1 April 2016 will be:

  • Aged 25 and over = £7.20 per hour
  • Aged 21 – 25 = £6.70 per hour
  • Aged 18 – 21 = £5.30 per hour
  • Aged under 18 = £3.87 per hour
  • Apprentices = £3.30 per hour

As a reminder, a worker’s hourly rate of pay is calculated by reference to their total remuneration earned over the relevant pay reference period divided by the total number of hours worked during that reference period. The number of hours worked depends on the type of work performed by the worker, and the following elements of pay are not included for the purposes of the National Minimum Wage:

  • Premiums for overtime and shift work;
  • tips, service charges and gratuities;
  • benefits in kind; and
  • expenses.

Hot topic: HR and the Sports Direct scandals

After an expose of the appalling working conditions in its warehouses, Sports Direct’s share price plunged

But what is to blame for a culture of endemic mistreatment – including paying below the minimum wage – consumers hunting for the cheapest products, or bad business practices? And what is HR’s role in fixing it?

Simon Webley, research director at the Institute of Business Ethics, says:

“How does a company find itself in a situation like Sports Direct? Trust seems to have completely broken down between employer and employees.

We as consumers must take some culpability – our craving for cheaper products means that something has to give in order to maintain margins. After the unethical supply chain practices of the 1990s were discredited the focus has now moved to squeezing staff with zero-hours contracts and poor HR practices.

However, not all companies use these practices to fulfil the desire for cheap products. JD Sports does not use zero-hours contracts and yet is forecast for a 10% profit rise this year; Sports Direct has issued a profit warning. A reputation tarnished is hard to recover, not just with customers but with suppliers. For a retailer that can be critical; if key brands go elsewhere customers will surely follow.

The desire to change and improve must be a strategic one, supported by the board and senior management. A poor ethical culture can be so ingrained that treatment of staff may just be considered ‘the way we do business’. If employees are viewed suspiciously and treated like potential fraudsters this is likely to become a self-fulfilling prophecy – ‘the Golem effect’.

Giving workers the tools to ‘do the right thing’; trusting them to make choices in line with values; respecting them when they speak up – these produce a ‘Pygmalion effect’. If people are seen and treated considerately it influences behaviour positively.

HR has a central role in promoting and supporting an ethical culture. It is ideally placed to identify what cultural and ethical issues are affecting staff. And HR is responsible for systems and processes. If these are based on the golden rule – treat others as you would wish to be treated – HR can contribute to developing a positive ethical culture that will influence how a business is run.”

Check back tomorrow for part two of this Hot Topic

HR Directors Business Summit: Day one round up

The HR magazine team is at the HR Directors Business Summit. Here are some of the best bits from day one

  • “Who brings your brand to life?” asked Kathryn Austin, chief people and marketing officer UK for Pizza Hut. “I hope, in a room full of HR professionals, that the answer will be ‘your people’. In a business like ours your brand and your people are one and the same.” Austin, who discussed the relationship between the HR and marketing functions, demonstrated the transformation that Pizza Hut has undergone – not just in decor and products – but in its attitudes towards employees. “We had a control mindset so we had to reprogram. We had to ask what our customer brand was, and what our employer brand was, and decided that they are one and the same,” she said.
  • Anthony Douglas, chief executive of Cafcass, explained why it is so important to care for the emotional wellbeing of staff. “I think a happy employee is 50% more productive than an unhappy employee,” he said. “We have developed one of the best performance management systems in our sector.” James Hyde, head of HR at Cafcass, added that the organisation had to turn around a poor image. “We needed to find ways to properly reward and motivate staff,” he said. “But there would be no change unless we had top-down buy-in.”
  • Payroll and HR services provider Ceridian wanted to share the power of ‘one way, our way’. Ashleigh Evans, talent and engagement manager, explained that she strives to make superfans of her people. “You have to have everyone engaged,” she said. “If you can get your leaders to walk the walk then your people will too.” She also suggested that HR works closely with the marketing department within the organisation. “Please be best friends with marketing,” she said. “This will ensure your brand message is the same to your customers and your employees.”
  • Forget the career ladder – how about a career climbing frame? That was one of the messages from housing association RHP on engaging a multigenerational workforce. Head of employee engagement and communications Chloe Marsh explained: “Career development is not a ladder anymore; it’s not just about a linear movement upwards.” Group executive director of corporate services Amina Graham added that in an effort to keep things fresh and simple, and attract the right people, all job descriptions are limited to one page. “People who want a three-page job specification tend to self-select not to come here.”
  • Senior-level succession planning is becoming one of the key topics for 2016 and an opportunity for HR, according to Willis Towers Watson. “After decades of slumber, investors and regulators have woken up to senior succession planning as a serious governance issue,” said Radha Chakraborty, director of Willis Towers Watson’s talent management practice. But this increased scrutiny means nomination committees have to up their games. “Is your nomination committee sufficiently supported by HR and the board to make evidence-based decisions?” Chakraborty asked. She advised HRDs to audit their succession plans and look for potentially risky gaps.
  • Selina Millstam, vice president and head of talent management human resources for Ericsson, discussed the importance of purpose in business. “Purpose is a choice,” she said. “We decide how we act upon it, we are in control. It’s a practice. We see it as something deeply personal, and it has to be something about improving the lives of others.” Millstam added Ericsson takes a strong stance towards values. “I’m proud of how we encourage and promote this. If your values are not aligned to our company values you’re probably not a good fit for us.”

Advertised salaries in North East fall by 5.3%

The next largest falls were found in London and Scotland, where the average declined by 5.2%

The North East of the UK has seen the largest drop in advertised salaries in December, according to Adzuna.

The UK Job Market Report found that advertised salaries in the North East fell by an average of 5.3%, with the average advertised salary totalling £29,093. The next largest decreases were found in London and Scotland, where the average fell by 5.2%. The overall UK average was a fall of 3.5%.

The South East was the least affected area, suffering a fall of only 1.5%. The average salary there was £32,167.

Consultancy jobs finished the year with an average advertised salary of £49,626, up 11.1% from £44,687 in December 2014. Only customer service roles saw a higher annual growth rate (of 15%). Advertised salaries for HR and recruitment positions reached an average of £30,598, increasing by 4.2% from £29,370.

But energy, oil and gas jobs experienced a wage fall of 13.7%, and legal positions declined by 10.9%.

Overall, the number of advertised vacancies available in December stood at 1,164,502, a fall of 6.4% month-on-month from 1,244,772 in November. Although some seasonal dip is expected in December the research stated that this year’s fall is much greater than in previous Decembers.

Doug Monro, co-founder of Adzuna, said it has been a difficult year for the North East’s job market. “For an area dependent on industry, tough times in the manufacturing sector have had a knock-on effect,” he said. “And other sectors haven’t picked up the slack in order to cover job losses. The region appears to have been overshadowed by the North West when it comes to initiatives aimed at improving employment and skills.

“The area remains among the worst in the UK for unemployment and there aren’t many signs of this changing. Many young people are undoubtedly moving south to find better opportunities and this is depriving the area of some of its best talent and skills.”

What’s in a name?

We’re taught not to judge a book by its cover, but what about by its title? Name-blind recruitment could improve ethnic diversity

In October prime minister David Cameron held a meeting at Downing Street with some of the UK’s most celebrated business leaders. They were in agreement: tackling discrimination and celebrating difference is in the interest of UK plc. “If you don’t deal with the issue of discrimination you can never have true opportunity – which is what we all want to see,” Cameron said.

Organisations represented at the event included Deloitte, HSBC, KPMG, the NHS and the BBC, all of whom pledged to introduce ‘name-blind recruitment’, which means that jobseekers’ names will no longer be seen by recruiters. Cameron also announced that UCAS, the UK’s university admissions service, will accept name-blind applications from 2017.

The case for taking action was quite clear. Many studies have shown a correlation between ‘ethnic-sounding names’ and a lack of success in job applications. Research from the National Bureau of Economic Research in the US found that jobseekers with white names needed to send about 10 CVs to get one call back. Those with African-American names needed to send around 15.

With the so-called ‘war for talent’ continuing to rage the reasoning is clear: UK organisations need as wide a pool of talent, and as much diversity, as possible to thrive. And this is being jeopardised before the candidate even walks through the door.

Emma Codd, managing partner for talent at Deloitte, says it’s about time companies took a long, hard look in the mirror. “We’d always assumed bias was most likely to kick in during a face-to-face interview but actually that’s not the case. It can still happen there – so we’ve trained people to make sure they’re aware of unconscious bias – but we wanted to make sure there was no bias when the CV or application hits the desk,” she says.

The first step for Deloitte was taking out references to applicants’ places of study, known as ‘institution-blind’ recruitment. It’s also in the process of introducing contextualised recruitment in partnership with Rare Recruitment. “This enables us to look at somebody’s A-level results in the context of various socio-economic factors. Somebody who got three Bs at a school where three Ds is the norm is – to us – extraordinary,” explains Codd.

Once the rollout of contextualised recruitment is complete, Deloitte will begin implementing these name-blind recruitment practices by the end of July 2016, says Codd.

While Deloitte is in the early stages, other organisations are considerably further along the adoption curve. Law firm Baker & McKenzie, which is also introducing contextualised recruitment, has been name-blind since 2007. “We focused on looking at how many BME graduates were applying to us and how many were successful, and we analysed statistics around that. Then we had a big plan to try and ensure we were getting more people applying to us and that we were converting those into jobs,” says Sarah Gregory, inclusion and diversity partner at Baker & McKenzie.

It’s fair to say it has been a successful programme so far: the number of BME new starters was 3% 10 years ago – it’s now around 30%.

The NHS isn’t new to name-blind recruiting either. But chief people officer Stephen Moir admits that it can be challenging to implement, particularly at smaller organisations. “We’ve got the advantage of a very well developed national jobs portal, with all of the necessary back office support behind it,” he says. “I recognise for some organisations that would be a huge investment in technology and particularly for a small to medium enterprise it might not be feasible to have that type of technology in place.”

He cautions that name-blind recruiting is not entirely foolproof. “While the recruitment process is name-blind, people can still make assumptions based on information. They might be able to look on an application form at the date people completed qualifications, for example, and guess age. Or you could look at where they’ve been educated and infer nationality or ethnicity based on school or university.”

Moir recognises that name-blind application processes are not a panacea but says they’re a good place to start. “It’s not a complete solution but it’s certainly a big step change to what many hiring managers would have experienced in the past,” he says.

Gregory agrees: “Contextual recruitment and name-blind recruitment are very important parts of widening the pool who apply to us but it needs to be sitting alongside a whole raft of other things, such as unconscious bias training and involving more junior staff in interviews to put candidates at ease,” she says. “There’s no silver bullet.”