City HR undermined as non-exec directors exploit crisis to take charge

The global financial crisis has caused City HR professionals to lose their grip on making key bonus decisions, experts have claimed.

Sophie Black, director, performance and reward at accountancy firm Ernst & Young, said non-executive directors (NEDs) in charge of remuneration committees were increasingly straying below board level and encroaching into HR’s territory to oversee reward payments to senior and middle management.

She told Personnel Today: “There is a rationale for going immediately below board level for succession planning by NEDs, but they seem to want to go much further.”

Competition between NEDs and the HR function had increased in recent years, and reward was now a point of conflict. “There’s a discussion needed between HR and remuneration committees, and soon,” she said.

Roger Barker, head of corporate governance at the Institute of Directors, warned that the current spotlight on bonus packages and poor management by City HR teams had forced NEDs to interfere.

“This financial crisis highlighted that certain types of organisations have individuals whose remuneration is more substantial than board members, so it’s reasonable that those in charge of remuneration should take over responsibility,” Barker said.

“Boards of directors are exerting greater scrutiny over parts of the business than in the past, and HR will have to grow accustomed to it,” he added.

“Reward has become a bigger issue for shareholders, the media and the public,” he said.

In 2006, an independent regulator’s corporate governance code set out rules including assigning remuneration committees responsibility for rewarding board members and ‘senior management’.

But Charles Cotton, rewards adviser at the Chartered Institute of Personnel and Development, said this term needed further clarification, and warned HR needed to work with, not against, NEDs.

“The fact NEDs are getting involved means either HR isn’t doing a great job, or isn’t explaining it well enough to the remuneration committee,” said Cotton.

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