Unhappy workforces can cost companies billions of pounds. That’s why pension schemes need to evaluate the businesses they invest in to ensure they have good employment practices. Luke Hildyard, explores how the PLSA’s toolkit can help schemes achieve this

A good workforce is a happy workforce, we all know that. But do we all know that an unhappy workforce can cost UK firms billions of pounds a year? In fact, according to research for Oxford Economics conducted in 2014, staff turnover costs UK firms £4 billion a year. 

 

 

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Further research by Warwick Business School and the Wharton Business School at the University of Pennsylvania, found that companies that appeared in the ‘Great Place to Work’ institute’s ‘Great companies to work for’ all exceeded the performance of the wider stock market in their country of listing.

Failures of working culture and the ways in which workers are managed and incentivised have led to major corporate crises across a number of sectors. Major banks have accumulated billions of pounds worth of fines as a result of LIBOR manipulation and PPI mis-selling.

Poor culture and a failure of boards and management to properly understand or manage what was going on the shop floor of their companies has also been cited as a contributing factor to major corporate scandals at Volkswagen, News International and BP.

Sports Direct recently fell out of the FTSE 100 amidst revelations about the treatment of workers. The company’s founder Mike Ashley famously blamed negative publicity resulting from criticism of Sports Direct’s employment practices for its employees.

Sports Direct recently fell out of the FTSE 100 amidst revelations about the treatment of workers”

UK pension schemes invest hundreds of billions of pounds worth of savers’ money in listed companies across the world, and how these companies perform have major implications for their pension scheme investment – which ultimately affects the pensions of their beneficiaries.

Understandably, pension schemes are becoming increasingly interested in the workforce they are invested in, however, most annual reports currently fail to relate fully the role played by a company’s workers in achieving past or future performance. In order to address this we have produced a toolkit for our members, it outlines the type of workforce-related information they should look for from investee companies and how to access it.

The toolkit recommends that pension funds encourage investee companies to use their annual reports to detail their corporate cultures and working practices in a narrative form that relates the way they manage and engage their workforce to their wider strategy and business model. At the same time the narrative should be underpinned by consistent, concrete data, using performance metrics such as:

  • Gender diversity
  • Employment type (e.g. full time, part time, agency)
  • Staff turnover
  • Accidents, injuries and workplace illnesses
  • Investment in training and development
  • Pay ratios (across highest, media and lowest quartiles)
  • Employee engagement

The toolkit also highlights ways in which pension funds can corroborate information presented by companies in annual reports, and suggests more qualitative questions that they can ask of companies at individual meetings.

Investing and detailing the investment into your workforce can not only help the productivity of your business but may also increase the attractiveness for potential pension scheme investment.

To find out more about the toolkit please visit the PLSA’s website.

Luke Hildyard is policy lead: stewardship and corporate governance at the PLSA