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Investors: Time To Ensure Thinking Beyond Financial Rewards

Posted on November 29, 2012 at 12:05 AM

The UK's LAPFF (Local Authority Pension Fund Forum) always did speak good sense. (A voluntary association of 55 public sector pension funds based in the UK, its members also currently have combined assets of over £115 billion.)

Now they have excelled. Today LAPFF recommends that shareholders pay more attention to how companies engage employees and ensure their commitment, and move away from an exclusive focus on financial rewards to motivate staff, including executives.

In a report launched at its annual conference this week, the Forum has set out a new agenda for shareholder engagement with companies. Oh brave new world? The LAPFF has concluded that " financial incentives have only a limited role to play in the creation of successful businesses." (my emphasis)

Tell that to the banks. And they may even have a receptive audience, as it turns out that the banks, which have lost both public trust and investor faith, may need all the help they can get.

Only very recently, I did some work for a firm that was, in turn, working with investment banks - and the joint appetite to hear 'more' on how sales could be achieved when they were clearly between 'a rock and a hard place' on regulation restricting the rules around those sales astounded me. 'Sell, sell, sell' without defining what it is you are selling, whether you believe in it or why you are selling it in the first place.....

The Forum's work around "the science of non-monetary reward" shows that "employees care deeply about purpose, are drawn to working with people they connect to, value autonomy, seek to achieve mastery and are fulfilled by achievement and progress. They are also heavily influenced by the context in which they work: whether they feel valued, whether they perceive themselves to be fairly treated, and how they are treated by immediate superiors."

In other words, put the 'human' back into working with human beings and you might get more out of them.

AND SO investors need to ask very different questions from the ones they have been asking about whether companies are getting it right. The guide offered by the LAPFF introduces a set of questions "that are designed to enable interested pension fund trustees and asset managers to appraise the link between people and investment value."

It really should not sound revolutionary - but in UK 2012 I think it does. 

LAPFF chair Ian Greenwood said: "When investors engage with companies over reward and motivation they almost always focus on board members alone, and exclusively rely on financial incentives. However, having explored these issues in depth for several years now, we believe that both assumptions need to be challenged. A company won't excel if its employees are disengaged and uncommitted, no matter how the directors are paid." (my emphasis)

And he goes on : "More fundamentally, the ever expanding science of human behaviour shows that financial incentives have a limited role to play in getting the best out of people. A new approach is needed."

Indeed. The report is available here  by Thursday 29 November. And it is well worth reading and sharing.

As Mr Greenwood says: "Too much time is spent talking about the pay packets of a handful of people on each board, whilst what is going on inside the business is left unexplored." 

(I have written about employee engagement for the Financial Times not that long ago, and you can read that here as well, if you have access to FT.com.

That article was inspired by internal communications work I had done as an independent journalist for FTSE-100 company Experian plc. I worked with senior management starting with CEO Don Robert, who personally drives the company's employee engagement programme.)

This thinking is so very important - which is why I stay up until I can clear the time embargo.

Categories: Investors, Measurement, Behaviour