Signium International

The first problem detected was the lack of transparency and the absence of accounting statements from the Board of Directors to the company’s shareholders. Precisely, the expression “Say on Pay” comes from this lack of the shareholders’ opinions regarding the CEOs’ remunerations. The first example of legislation with the goal of promoting these principles of “good corporate management” appeared in United Kingdom and was introduced in 1988 as “Combined Code on Corporate Governance”.

“Fulfill or explain”. This was the requirement that UK’s legislation imposed on listed companies. These companies had to fulfill the “good corporate management” principles or they had to explain the reasons for which they decided not to comply. Anyhow, because of the poor observance of the Combined Code, another step forward towards this regulation occurred in 2002 when the Remuneration Report Regulation was created. This regulation enforced the idea of voting regarding the CEOs’ remuneration (even though this voting maintained its counseling nature) in the shareholder’s annual meeting. Since these UK reports, many countries such as the United States and international organizations such as the European Commission have developed and proposed new reports and codes of “good corporate management”. In Spain, these regulation attempts have been manifested in some articles of the Sustainable Economy Act.

What does fate have in store with the enforcement of this new law? Until now, in the case of Spain as well as the cases of United Kingdom and the United States, the enforcement of the recommendations regarding the CEOs’ remuneration has been poor. Only 35% of the companies have fulfilled the recommendations about the general meeting. Thus, the majority of cases still are those in which the shareholders do not even participate in this decision, or those in which even though voting against the CEOs’ and top executives’ remunerations report offered by the Board of Directors, this report has been stopped from moving ahead.
It seems obvious that by acting this way the Board of Directors should be aware that they risk being replaced by the shareholders, yet the reality is another. The diversity that currently exists among shareholders usually causes very different reactions, without a doubt very far from promoting a collective action, including rejections like that of the directors (the refusal by the Board of Directors to take into account a negative result of a voting). In addition to all that was previously explained, there is another problem: the Boards of Directors try to give the image as to be independent, but really they are not. This impinges on the total independence of the “say on pay” practice, which makes it that much more difficult.

Another additional difficulty to the limited “true” independence of the Board of Director’s members can be found in the fact that in practice it is generally very difficult to count on reliable information in some fields. The reason is due to the fact that this information is usually created and presented by the executive staff to which they want to control.

Definitely, during the next months we will see the real effect of this legislative piece. We will also prove if this new regulation attempt is enough to solve the great doubts, which currently have resounded once again, about the determination, the possibility of demanding and the tax deductions regarding the retributions received by the chief executives of big companies. No doubt that to make everyone happy, the most convenient way would be to face this situation from a realistic perspective, which should be far from the populist demagogy as well as from the rest of existing lobbies. And it wouldn’t be a bad thing if the companies, by themselves, introduce in their compensation policies clauses that could decrease the differences between the best and worst paid individuals in the company.

If we look back, this is not as strange as it seems to be. In the United States, General Electric voluntarily introduced more transparency in their SEC (Security Exchange Commission) reports. And these improvements were later followed by the majority of the participated companies, in part due to the pressure of their own shareholders and in part because of the SEC’s coercion. Regarding Spain, our country is not a meritocracy (yet) in the business sector; and therefore, to introduce all these procedures is much more difficult. Despite the previous statement, the positive fact is that because Spanish companies are beginning to be present in the most demanding markets, these practices will inexorably be imposed. Just give it time.

The Sustainable Economy Act, which came into force on the 6th of March, has introduced an obligation for the listed companies to annually release a report about the retributions earned by CEO’s and to submit it to the counseling vote at the general shareholder’s meeting. In my opinion, this piece of legislation proves the necessity to deal with one of the company matters which has generated more controversy over the last decades and on an international level. Moreover, the financial and economic crisis that we are going through has reinforced the general interest in this matter. Specifically, one of the most significant and attention driving issues mentioned in the press as well as in public opinion, are the excessive retributions received by certain chief executives who have carried out, at the very least, a poor performance.

Maybe one of the most blatant cases, which has recently given rise to a lot of written opinions, is the one of BP’s CEO, Toni Hayward. Some media titled the news in the following way: “BP ‘fires’ its CEO with a millionaire pension while announcing record losses”. Ray R., Occidental Petroleum’s CEO, was also criticized by the media and rejected by the majority of shareholders of his company, after receiving a compensation of $ 160 million, while the corporation he still was administrating was going through a complicated financial period.

Besides the fact that these compensations are excessive, another complaint heard regarding the remuneration of chief executives is that their involvement with the company’s results is poor in the long-term and excessive in the short-term. In my opinion, Toni Hayward’s case was severely and unfairly criticized by public opinion, due just for this reason that his departure occurred in a complicated moment of the company. BP’s CEO was granted a year’s salary, as well as the right to withdraw part of his retirement pension which has been estimated to reach approximately 11 million pounds sterling. Nevertheless, it must be said that in Hayward’s favor, he left behind twenty eight years as head of the company, during which thanks to him as its CEO, the company reached great achievements.
These and other examples invite me to ask myself about the complex matter that is on the basis of which variables should the CEOs remunerations policies of a company be regulated. I have no doubt that there has to be a connection between the performance of the company (the results obtained by the company) and the CEO’s retribution. But, which should be the fairest connection? Moreover, which is the individual’s and which is the environment’s influence over the results? Should the goals by which these executives are evaluated be aligned with the goals of the rest of the companies of the competitor firms? Or, should each be graded by their own standards? Which company is exactly comparable with another one?

Beyond these and other cases in which for one or another reason an existing moral problem becomes obvious, it is necessary to arrive to the root of the problem in order to understand why, despite the different regulation attempts, there is no successful case yet. However, I will reflect on this matter in my next post.

With the aim of continuing in our reflection on employer branding, I will begin this second post by rescuing from the inkwell one of my main convictions regarding the matter: “(…) a good start to implementing employer branding will always be to remember that our employees value us for what we do and not for what we say.  Walk the talk and things will improve from there.”

From my point of view, it would be convenient to highlight the word “start” in the previous paragraph if what we propose to circumscribe the concept of employer branding to an economic and business context like that in which we find ourselves.   It has been a reality for some time that in Spain there is still not much of a real sense of interest in the use of effective employer branding strategies that will contribute globally to better company results.  In my opinion, the reason for such lack of mobilization has more to do with a misunderstanding of concept than anything else.  In many companies, investment in employer branding policies are still considered expenditures with no return; they have not understood, not realized it exists, (as opposed to in other countries, such as in the U.S.) the belief that backs that motivated employees always yield higher returns for the company, as compared to those that are only connected by job stability offered by the employer.  In this sense, family-run companies in Spain tend to achieve this better than larger corporations.

Therefore, it would be an error of “oversimplification” to blame only the make-up of companies for this situation.  One of my personal beliefs is that if Spanish companies -as of today and in contrast to many companies in other countries- continue to turn a blind eye to powerful potential employer branding policies, it is because the Spanish employment market still doesn’t allow for it.  This happens because, as a general rule, Spanish professionals are not particularly discerning when they choose the company at which they will work.  Also, this situation is worsened in times of economic crisis such as the present, when the highest aspirations of most professionals tends to be to find a stable job.  However, the employer brand of a company is not treated and received in the same way at all levels of the professional pyramid.  For those professionals that move between the highest rungs of the ladder, belonging to a company with a strong employer brand tends to be a must when looking to embark on any new project.

In this sense, and above all, for a group as specific as upper management, is where Spain places itself closer to other “more sophisticated” job markets as, for example, the U.S. or the U.K.  On more than a few occasions on my tours abroad, I have met candidates that have rejected job offers because their values were not in sync with those of the hiring company, o because they had heard some negative comments about it.  The existence of annual rankings, such as that of Fortune magazine, that list the 100 most desirable companies to work for in the world, is another clue that in these countries employer branding is very important.  In the same way, stressing one of the central points in both articles, for employer branding to work you can’t just believe in it.  As we have already said, one must walk the talk, and in this sense I believe that in Spain we are still far away from understanding why an airline pilot would accept a position as a baggage handler in order to work with a particular company (in this case, and it’s a true story, for Southwest Airlines).

In conclusion and going back to the word “start”, I believe that in Spain the best way we can advance in the realm of employer branding is, on one hand, a greater sophistication in the job market (candidates need to be more discerning), and on the other hand a greater belief on behalf of companies in the benefits of employer branding policies.  If we work towards having our employees motivated at work, they will in turn work towards making our company more competitive.  Acting this way, the solution to the equation will always be a guaranteed: WE WIN.

Employer branding is a key concept to keep in mind within a company’s culture and general strategy if it wants to compete in the attraction of “talent”.  Under this concept one finds this imaginary road upon which all companies that aim to develop recognizable long-term value should embark. The objective is to create an identity for our organization that shows that it is an excellent place to work in the eyes of our employees, clients, investors and potential professional talent that we could attract.

In this sense, when we begin our journey towards employer branding, the first steps we take must be directed towards creating favorable conditions for the development of our employees.  To that end, we try to associate our brand and attributes of our corporate identity with those characteristics that our employees seek (development, personal growth, success, strength, positive work environment, good social reputation, etc.).  Of course, all effective policies of employer branding are linked to a specific market; that is to say that although people tend to hope for the same things from their employers, their value set of the people in question is important as values can be different depending on the country in which the company is located.

Most definitively, if we want our company to convert into a talent magnet, and our employees to feel proud to work for us, then we need to be able to find connections between our corporate identity and our employees.  Those companies with effective employer branding have be able to reach their professional teams through emotional channels.  Many of them appeal to their history, magnifying the careers of their founders, o even invent heroes of the company that never existed.  Their proposal with this action is to try to position themselves in front of the rest as winning companies.  However, all declaration of intentions towards our employees will lack meaning if our words remain only on paper.  To truly connect with an employee it is fundamental to practice a strategy of walk the talk.  Employer branding doesn’t mean judging a companies values, but rather to what extent these are put into practice and shared with their teams.

Clearly, “to walk and blaze a path” in employer branding also means implicating the appropriate departments (HR, Communication & Marketing, etc.) and to designate the economic resources necessary.  We need to be conscious and consistent over time, and above all be convinced that a motivated and proud employee, in the long-term, will always bring benefits to the company. Due to the current economic situation, and the difficulties faced by the Spanish economy to create sufficient jobs, Spain is a country in which we still have a long way to go.  Nonetheless, a good start to implementing employer branding will always be to remember that our employees value us for what we do and not for what we say.  Walk the talk and things will improve from there.