Remuneration Committees (RemCos) play an important role in deciding how executive directors are rewarded and making sure remuneration supports the organisation’s objectives. Their work typically focuses on the CEO, and, in some boards, other roles like the CFO, but some boards broaden the committee remit and cover wider executive pay, workforce remuneration and gender pay gap data. In certain organisations, RemCos have been replaced by ‘People Committees’ with a remit including other areas such as people, culture and workforce engagement.
Moni Mannings, OBE, spoke to the Dynamic Boards Non-Executive Community to share her experience and insights on remuneration committees. Having chaired RemCos for more than 10 years across organisations in manufacturing, financial services, aviation, retail, charities, regulation and higher education, she brings a broad perspective on the role of the RemCo and the range of issues that sit within its remit.
“Despite the differences in organisational structures and sectors, there are some key principles around remuneration that remain consistent, whatever the nature of the organisation. It’s important to draw those principles out while recognising the particular context of the sector you’re operating in,” she says.
For Mannings, the aim is to make sure remuneration outcomes are fair and defensible. That means looking beyond the formulas and understanding the thinking and judgement behind them.
“It’s really important, whether you’re a member of a remuneration committee, chairing one or simply a board member receiving a report, not to be fooled into thinking remuneration is formulaic. Even when there are formulas involved, it isn’t simply about doing the maths and arriving at an outcome. Understanding what lies behind the numbers is just as important.”
Her four-step approach helps RemCos work through the thinking behind remuneration decisions:
1. Understand the board’s priorities
Start by being clear about the strategy and priorities the board has agreed for the year and the medium term. If those priorities aren’t clear, it becomes much harder to create remuneration arrangements that support them. Before considering pay or incentives, the board needs to be clear about what it is trying to achieve.
2. Identify the KPIs
The next step is making sure the board and executive team are on the same page about the key performance indicators and what success looks like. Everyone should understand what the KPIs mean and how they will be measured. This gives the board a clear way to assess whether the organisation is delivering against its strategy.
3. Align remuneration with those objectives
Once the priorities and measures are clear, remuneration structures and incentives can be built or adjusted around them. The aim is to reward executives for delivering the things the organisation has agreed are important.
4. Sense-check the outcome
Finally, step back and consider how the proposed outcome looks from the perspective of the people it affects. Depending on the organisation, that might include stakeholders, investors, employees, customers, beneficiaries, regulators and wider society. This becomes particularly important when circumstances don’t fit neatly with the assumptions that were made when the remuneration arrangements were originally designed.
Putting the principles into practice
Moni’s experience of working across very different organisations provides some useful examples of how these principles play out in practice.
When Mannings joined the board of easyJet during the first national lockdown during the Covid pandemic, the airline was completely grounded, with many cabin crew members, pilots and engineering staff furloughed. Senior executives and administrative teams were working exceptionally hard to keep the business financially viable amid shareholder activism, a complete loss of revenue and a significant drop in the share price.
The existing incentive arrangements had been designed for normal operating conditions and simply weren’t relevant to what was happening. The challenge for the RemCo was how to recognise the contribution people were making while working within the governance and regulatory constraints of a listed company.
“In the end we did what we could,” explains Mannings. “We were able to support the wider executive and administrative teams, while also, where we could, bringing some of our furloughed colleagues back and topping up their pay. We absolutely believed the airline would survive, as it has done, and we needed to keep all of our colleagues rewarded, remunerated and understood for what they had been through,” she adds.
In contrast, Moni encountered almost the opposite situation while working on the RemCo of a FTSE 100 savings and investment platform. With more people at home during Covid, demand for the company’s services increased significantly, driving strong results, a rising share price and high profits. The RemCo therefore faced a very different question: how should that success be recognised in the wider context, when many others were experiencing significant financial difficulty? The outcome was generous, but the wider context was part of the judgement about how it would play out beyond the organisation.
Balancing pay with organisational purpose
Organisations with a strong social purpose can bring a different set of challenges for the RemCo. In her work with the Co-op Group and Barnardo’s, Mannings found that the question was how to attract, retain and motivate high-quality people while recognising the expectations that come with being a member-owned or charitable organisation.
There can be a perception that paying senior people more in these types of organisations takes away from members, beneficiaries or the wider social purpose. But paying too little can also make it harder to attract and retain the people an organisation needs.
“Those are actually quite difficult things to manage. In the end it doesn’t come down to structures but overall quantum and whether the amount is egregious,” says Mannings, who believes that understanding the people involved is crucial in navigating this tension. There isn’t a structure that can provide the answer on its own; RemCos also need to consider the organisation and its wider purpose.
This can also mean looking beyond the pay package itself. The organisations weren’t going to compete with a FTSE 100 listed retail company on salary, so the focus was also on what else could support and motivate their CEOs. For one CEO, that meant helping to raise their public profile and influence; for another, it meant using board connections to create greater political access. “It wasn’t just about remuneration,” says Mannings.
RemCo work involves balancing competing interests and finding solutions that may not leave everyone completely satisfied. As one of Mannings’ former colleagues put it: “If everybody’s a little bit unhappy, then you’ve probably got it about right.”
It’s a useful reminder for anyone sitting around the RemCo table: the goal isn’t necessarily to find an outcome that makes everyone happy, but one that is fair, defensible and aligned with the organisation’s priorities and purpose.
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