by Paul MacKenzie-Cummins, Editor and Managing Director of ClearlyPR
Theresa May recently announced plans to reform executive pay – the premise of which is to reduce the pay gap between those on the shopfloor and executives in a bid to tackle excessive pay.
Rebuilding public trust in executive pay and linking it to corporate performance is right. But are we missing the point as to why executives are paid what they are and equally, why recruiters charge the fees they do?
The last 12 months has seen a wave of high profile corporate executives make the headlines over their remuneration. Shareholders at the likes of WPP, Sky and BP et al have been up in arms in a collective expression of investor fury and ‘buyers remorse’ over how much Messrs Sorrell, Darroch and Dudley were being paid, whether through salary or performance related bonuses.
And over the last few months, the BBC has faced growing pressure from a group of MPs calling for the broadcaster to publish the names of all high-earning employees.
In this case, the issue seems more to be a political witch hunt from a group of MPs with little to gain other than ruffling a few feathers and feeding the tabloids with a few juicy tit bits, and less about defending levels of pay from a disgruntled board of shareholders…which of course, being a publically-funded body, the BBC does not have.
So how can recruiters stave off criticism over how much senior executives are compensated?
To me, the answer is simple:
Whether someone gets paid £100k or £1 million is down to one simple equation: Is the business financially in a better or worse position with that person in place?
If they can be seen to significantly impact the bottom line, then their salary by comparison becomes irrelevant. Take the case of Thomas Cook.
The travel operator was on the verge of bankruptcy until the company appointed a new CEO, Harriet Green. Within 24 months of taking on what was probably her greatest career challenge to date, Green had brought the company back from the edge to return a profit.
Such was her impact on the business that when she announced her decision to leave in 2014, the share value of Thomas Cook dropped by £400 million overnight. And how much was she paid? £3 million – a mere 133-times less than her perceived worth.
Alexandre de Juniac is another great example. When the CEO of Air France-KLM announced his plans this April to leave the business, the share price of one of Europe’s largest airlines drop by 8.6% – €2.4bn.
So when we consider figures like this, the argument against top executives being paid the big bucks becomes a difficult one to argue, but an easy one to sell.
When it comes to justifying the fees that agency’s charge for each successful placement made, the same explanation applies.
There is no doubt that if a search firm was used to place Green with Thomas Cook or de Juniac with Air France-KLM, their 30-50% placement fees represented a significant return on those employers’ recruitment investment.
That’s the key here – showing the ROI of the work that recruiters actually do.
I recently interviewed a recruitment firm and one of the greatest challenges they said the industry faces is the way it communicates with clients the methodologies used to help them find the right candidate for the right role. Strip back the hyperbole, they said, and instead focus on selling the features of what you do and the benefits the clients receive in return.
We have the same issue in public relations, where many people question the fees that are charged in our field.
Some clients still think that a press release should take no time at all to complete; after all, how long does it take to write a single page of A4 and send it off to a few journalists, right? Err, wrong.
First, we have to research the story, get quotes from the senior management team, check the facts, make sure the story has relevance to what is trending in the media right now, draft the press release, make whatever changes the client wants, compile a list of suitable publications to send it to, find the email addresses and phone numbers of those journalists we want to send it to, send it, follow it up, supply whatever additional information a journalist needs, obtain copies of the press coverage…you get the point.
What may seem a simple sheet of paper is actually a project in itself – it can take as little as four or five hours to complete or as much as a full working day…sometimes more.
Whether an executive or a recruiter is paid too much or too little is irrelevant and the entire debate over this misses the point entirely of why they get paid what they do.
It’s simply down to ROI – if the executive delivers the results the business needs and the recruiter has been the key facilitator in procuring that executive talent in the first place, the amount that either party is paid becomes a misnomer.
According to the Chartered Institute of Personnel and Development (CIPD), the cost of a mis-hire can range from £12,000 (yes that is the minimum estimate they state) to £28,000 or more.
The question then becomes one of Can we really afford to offset that loss?, rather than Can we justify paying a 15% commission on a £30,000 salary? Well, if they do the maths, that 15% is just £4,500 – I know what I would rather pay.