Grant Thornton’s new chief executive, Sacha Romanovitch, made headlines this summer for more reason than one. As a woman, her appointment to a high profile position in the relatively conservative world of accountancy might have been expected to draw attention, but the real interest came from the announcement that her pay would be capped at 20 times the firm’s average salary.
Whilst the cynic might say that this was mere window dressing (the resulting salary is likely to be much in line with the earnings of those in similar positions at similar firms), it did make something of a statement. Certainly, the 20 times figure compares favourably with the ever-widening ratio for FTSE 100 bosses, whose average salary is now said to equate to 183 times that of the average worker.
Although multi-million pound salaries and substantial bonuses may seem far removed from the world of the average SME, staff in most organisations have strong views on the remuneration of management and resentment can grow where the “effort in versus reward out” ratio appears unfair. A credible and transparent remuneration policy can go a long way towards winning the loyalty of employees and other stakeholders. If incentives are clearly linked to performance and achieving the long term goals of the company, it is less likely that management pay will be the subject of dispute.
Although discussion of corporate governance in the media almost always revolves around remuneration, there is much more to the topic than just pay. Unlisted companies may not be subject to the UK Corporate Governance Code, but each have no less reason to embrace the concept of good corporate governance, whose aim (as stated in the Code) is “to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company”.
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In the context of private companies, governance is less about the relationship between the board and external stakeholders and more about the culture and systems that underpin the business and the way it is run. Making the transition from the vision of a dynamic founder to the wider vision of a balanced board can be a challenge, but as a company grows in size and complexity it is important that no single individual dominates.
Although there may be nervousness around bringing “outsiders” into owner-managed companies, the effectiveness of an SME board can often be greatly enhanced by the addition of external non-executive directors with good sector expertise or other relevant skills.
In an uncertain world, where the aftermath of the recession is still felt by many, employees are less confident about job security and perhaps more questioning of the good faith of their employers. To an extent, this is an irreversible shift as the concept of a job for life is increasingly unrecognisable.
However, every organisation benefits from a committed and motivated workforce and any reasonable steps that can be taken to increase employee confidence are worth taking. On the most basic level, concerns about the future of the business can be somewhat allayed if the CEO is willing to articulate honestly the operational and strategic risks faced by the organisation and demonstrate to employees what is being done to address them. It is impossible – and undesirable – to eliminate all risk from the business environment, but mitigation of risk is a fundamental part of good corporate governance, applicable to companies large and small.
Upon her appointment, Romanovitch also announced the introduction of a shared enterprise scheme at the firm – through which all of Grant Thornton’s 4,500 employees would participate in a profit share similar to the one adopted by the retailer John Lewis. Whilst this concept of shared rewards links back to incentivisation through remuneration, Romanovitch made it clear that a key part of her motivation was the desire to establish a culture of trust and integrity.
As much as employees appreciate a pay rise, feeling valued and being given genuine responsibility can be an even more powerful motivator. A wise CEO will seek to engage with their workforce, something that is much easier in your average SME than a FTSE 100 company.
Communicating openly and regularly with employees at all levels and canvassing their opinions (Romanovitch has proposed inviting lower-ranked staff to join board meetings) can only be a good thing. Honest feedback is nothing to be feared and genuine, good faith criticism – if acted upon when appropriate – may well strengthen the business in unexpected ways.
Melanie Wadsworth is a corporate partner at international law firm Faegre Baker Daniels.
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