CIPD wants executive pay to be linked to company culture
Boards have a vital role and responsibility in understanding culture and how it affects employees, highlights new CIPD report
The CIPD, the professional body for HR and people development, has been invited by the Financial Reporting Council (FRC) to contribute to its research into the evolution of the corporate governance code and the development of new approaches to governing more effectively on cultural issues.
The FRC promotes high quality corporate governance and reporting to foster investment. It has invited the CIPD, amongst other professional bodies and organisations, to submit evidence across four key themes of delivering sustainable success, people issues, embedding and assurance, and stakeholder issues.
The CIPD has been leading on the people issues them of work and has gathered insights in a body of evidence entitled: ‘A duty to care? Evidence of the importance of organisational culture to effective governance and leadership.’ In ‘A duty to care?’ the CIPD considers a number of important questions posed by the FRC, and draws on extensive research from the HR profession into the understanding of organisational culture. Key questions about the purpose and value of culture, the measurement and reporting of cultural issues, and the impact and importance of workplace concepts such as employee wellbeing, engagement and performance are explored.
Peter Cheese, CIPD Chief Executive, comments: “Culture is central to the success of organisations and to the wellbeing of our workforces, but it’s complex to understand and takes time to change and effort to sustain. Positive and healthy cultures are true to their stated values, give voice to people, engage them, and create the best environment for people to perform in, thereby creating value and competitive advantage. However, as recent corporate scandals have shown, when cultures turn toxic trust breaks down and performance, wellbeing and reputation suffer. This is why boards have a fundamental role in understanding the cultures of their organisation and how culture is changing or evolving, as well as leading from the top in the behaviours and values they demonstrate. They must also hold management to account to ensure that culture, values and behaviours align, and the decisions the organisation makes enables it perform financially, ethically and sustainably.”
The CIPD’s report explores the crucial role that boards play in setting the culture of the organisation and maintain the standards for the business to operate against. It has the following top-level recommendations:
• Champion change from the top: The Board must lead cultural change from the top and evidence its impact on the business. Appointments must be based on merit and quality and the board should be diverse and representative of the organisation and community in which the business operates.
• Empower the board’s committee’s: Empower the remuneration committee to challenge and act with integrity, independence and transparency.
• Develop leadership capability: Leadership capability should be built in line with cultural and behavioural values and leaders must role-model these attributes to the wider business
• Value alignment: Align core values at the very top of the organisation and apply a values lens to board decision processes, focusing on trust as an enabler of positive and productive cultures.
• Address reward: Ensure that reward decisions take cultural alignment into account, and align measures of performance and culture to address the issue of high pay in particular • Invest in people capability: Invest in building HR and people management strategy and capability which focuses on leadership and management culture and embeds cultural values across all levels of the organisation.
• Enable through voice and engagement: Build a culture of engagement and voice, communicating the importance of open and transparent values via top-down and bottom-up methods.
• Protect whistle-blowers and those speaking up: Create employee voice and whistleblowing processes that protect employees who speak out about cultural and behavioural issues, ensuring the board takes action to rectify concerns.
• Measure and report: Improve the measurement and reporting of cultural, organisational and human capital indicators, both internally and externally, to drive greater insight and transparency and communicate the importance to all stakeholders using data with a clear and accessible narrative. Seek evidence that all HR processes, including recruitment, induction, training and performance management reinforce and align with the organisations culture and values.
Peter Cheese adds: “We know through many years of research and work with HR practitioners just how important organisational culture is in helping to develop the conditions which characterise high performing and ethically-sound organisations. Organisations have a duty of care for their workforce, and this includes building a culture which is inclusive, healthy for employee wellbeing and an environment which promotes positive productivity. This is a fundamental oversight role of the board, and one which the FRC has duly recognised in the Culture Project. The evidence we share in this report highlights just how important it is that boards take note of their workplace cultures, and that they measure and understand its various dimensions. By doing this we believe that we can create better organisations which are successful for all their stakeholders, including their employees.”
The FRC will include the CIPD’s evidence in a report – Corporate Culture and the Role of Boards – which will be issued in July 2016.