Steering through uncertainty: Brexit and reward
24 June 2016
Like millions of people across the country, I woke up a little stunned this morning, and am still grappling with the full enormity of what’s been decided.
These are completely uncharted waters. A variety of post-Brexit trading scenarios, ranging from the Norwegian model to a series of bilateral agreements, could all be on the table. But it will be at least two years before anything is finalised.
In the meantime, businesses have to deal with the repercussions and all the uncertainty that go with them. And reward is one of the areas that could see significant upheaval.
Performance targets and bonus pools will be affected by volatility in the economy or movements in exchange rates. Ironically, a weaker pound could increase earnings growth in sterling terms for international UK companies, which could prove controversial if it led to higher bonuses at year end.
In terms of regulation, there will be no change until the eventual Brexit agreement is signed.
In the longer term, there will be some rule changes, particularly within the highly regulated financial services sector. Possible options include the abandonment of bonus caps and less prescriptive controls in areas such as the definition and regulation of ‘material risk takers’. There’ll be no bonfire of remuneration regulation as most of it stems from UK rather than EU legislation. But one of the possible upsides from Brexit is the move to remuneration regulation that it is entirely fit for purpose for the UK financial industry, without some of the less applicable features of EU regulation.
Yet in many ways the biggest upheaval is likely to stem from the volatile political climate. Political developments could put the level and perceived fairness of executive pay under an even harsher spotlight. Constitutional changes within the UK would have complicated ramifications for payroll, systems, pensions and currency management.
There’s no getting away from these issues. Reward has to be a key consideration within Brexit strategies.
Ready for change
So how should your business respond? Based on our ongoing analysis, we’ve identified four key priorities for steering through uncertainty and change.
1/ Carry out a full impact analysis to judge what the different post-Brexit trading scenarios mean for your business, how it’s structured and how it accesses key talent.
2/ Make sure HR is fully involved in strategic planning, project and restructuring decisions from the outset to ensure that the reward and wider people issues are assessed and addressed.
3/ Be clear on any areas where you would like to influence the terms of the settlement the Government seeks and establish a strategy for representing those views.
4/ Reassure employees by explaining what the different Brexit scenarios and your strategies for addressing them could mean for where they’re based and how they’re rewarded. Failure to communicate will create a vacuum of uncertainty, which could spur key talent to seek out opportunities elsewhere.
With these foundations in place, it will not only be possible to manage the impact of Brexit in a more informed and proactive way, there’ll also be opportunities to simplify and streamline the management of compensation. Further benefits include using the coming changes as a catalyst for aligning reward more closely with strategic management.