The workings of remuneration committees, generally known as RemCos, can seem arcane or opaque, almost like some sort of secret world to those who aren’t privy to their machinations. And yet they are a crucial part of ensuring fairness and accountability at work, and they desperately need the involvement of intelligent and empowered HR professionals.
RemCos are intricately involved with pay – which has, of course, been central to so many important stories in recent years, of which the government’s focus on CEO-to-worker pay ratios is the most recent. But their influence is also growing into different areas, all of which means the RemCo is a natural place for HR to influence and shape debate, as well as provide insights on pay, reward and behaviour.
So just what is a RemCo? Usually, it’s a subcommittee of the main board of a company, consisting of a chair and one or two other non-executive directors. It has advisers, who are typically external, and is often supported by the HR director. All listed companies must have a RemCo, governed by the Financial Reporting Council (FRC), but their use is spreading rapidly across the private and public sectors.
The RemCo is usually delegated by the board to manage the pay of the most senior executives in the organisation. They will have been set objectives based on operational and strategic outcomes, which makes it vital that RemCo members have an intricate understanding of business drivers and overall direction and are able to balance short-term rewards and those focused on longer-term delivery, backed by rigorous performance reviews.
People who sit on RemCos need to be highly skilled, tough and often courageous in the way they exercise judgement. At least one of them would probably have reward experience, as well as an understanding of team and individual performance, the ability to communicate with senior executives and knowledge of the science of human behaviour. The chair of the RemCo needs to form a partnership with the finance or audit committee chair, or equivalent finance director.
There are huge challenges to a RemCo role, from ensuring demonstrable good governance and transparency to dealing with issues such as fairness, equal pay and inclusion. But there are massive rewards too. The new FRC guidelines have set principles by which RemCos should operate and are recommending their remit be extended to cover broader matters affecting employees – rightly so, since when people are asked whether their own pay is fair, many will reflect on what senior leaders are paid. It is hugely demoralising for a workforce to receive low pay or below-inflation pay increases, yet see their executives rewarded very differently. This important issue is the topic of new CIPD research, RemCo Reform.
It’s clear that HR sits at the heart of these issues. HR data and insights are key to effective RemCo practice, and that means committees need high quality HR leaders to execute their responsibilities. But equally, I want to see more HR professionals on boards – and bringing HR skills to a wider role such as a RemCo is one of the best ways to develop into a board-ready executive. It is a powerful tool to personal development and growth, and if you haven’t already considered it, it could be a noble aspiration and an excellent personal opportunity rolled into one. So what’s stopping you?
Louise Fisher is chair of the CIPD and a member of its remuneration committee