Workforce is key to productivity puzzle

THREE minor revolutions happened this week. They were so discreet that even ardent readers of the financial pages may have missed them, but they are significant nonetheless.

All three point to the idea that the City is finally waking up to the contribution the workforce makes to the success or failure of a business.

This is a fairly radical departure from the previous position, where the only employee deemed worthy of notice was the one sitting in the chief executive’s office and hauling in a colossal package.

But in his broadside at £43m-ayear media mogul Sir Martin Sorrell at the WPP annual meeting, Standard Life’s governance guru Guy Jubb remarked pointedly that the company’s greatest asset is its 179,000 staff, not one individual.

Then Sacha Romanovitch, the first female chief executive of a top City accountancy firm, announced she is bringing in a John Lewisstyle profit sharing scheme at Grant Thornton, which could boost staff pay by a quarter.

She is capping her own pay at a maximum of 20 times the average salary – which is pretty generous, but compares with a typical ratio of 149 times for FTSE 100 firms.

The third straw in the wind came from the National Association of Pension Funds. It published a discussion paper drawing attention to the dearth of information investors have on how companies manage their workforces.

This does not add up to an outbreak of socialism, it is a recognition that the culture of a company, along with the skills, motivation and behaviour of individual employees, can have an enormous impact on reputation and financial performance.

Companies such as John Lewis and Unipart have been successful because their model i s built around employee ownership.

In the case of Unipart, the firm was created out of the old British Leyland, which had one of the most toxic relationships with the workforce in the 1970s, but now operates with impressive efficiency and commitment from staff.

Yet too many businesses are organised on sub-optimal lines.

One bank chief executive privately said last week that investment banks operated far better under the partnership model of the past, than they do now as part of retail and casino conglomerates. The partnership structure created checks and incentives that worked well in a risky and highly cyclical business, and was too easily abandoned.

A shocking statistic, courtesy of Dr Nigel Wilson, the chief executive of Legal & General, is that a quarter of all jobs in this country require only the educational abilities of an 11 year old.

Middle class jobs are disappearing due to automation and too many jobs being created are low value and low skilled. It is hard to see how the UK’s productivity puzzle will be solved without what the NAPF calls the ‘missing piece of the jigsaw’ – the employees.

Age of Experience

AS far back as 2011, when Bob Diamond declared the time for remorse was over, bankers have been demanding a clean slate. It was premature then, and it is premature now.

Britain’s banks have been emboldened by the outright Conservative victory in the election and have been noticeably more assertive since the polls.

George Osborne’s review of the levy has been widely characterised as the Chancellor backing down on ‘banker bashing’. That is an offensive phrase, echoing terms like granny-bashing. It falsely equates bankers with vulnerable victims and their critics with mindless thugs.

The behaviour of the banks was particularly damaging to the UK; the recession we suffered was intense because they form such a big part of the economy. It is true that Britain needs a strong financial system, but this will not be achieved by allowing the failed bankers to resurface unpunished, with lessons unlearned.

Yet their lobbying has been shameless. Their access to politicians is much greater than that enjoyed by the small businesses and manufacturers starved of lending during the downturn.

Against the background of a continuing flow of fines and misconduct that persisted well into the post crisis period, Governor Carney’s declaration that the Age of Irresponsibility is a statement of intent rather than actuality.

The Age of Innocence, however, has certainly been consigned to the history books.

Death benefits

THE concept of a bonus beyond the grave sounds like a sick joke, but ‘golden coffins’ – or pay and bonuses paid out to a top executive’s estate, over and above their life assurance payouts – are relatively common in the US. Ominously, companies here have started including financial information on what happens if a boss dies in service in their annual reports, raising fears that the procession of golden coffins might be heading our way. You can’t take it with you – but it seems some executives will have a good try.