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Executive Pay: Fair or Unfair?

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Institute of Business Ethics publishes Board Briefing for remuneration committees seeking to establish fairer and more sustainable executive pay. “Fairness and a quest for simplicity should drive the process,” says Peter Montagnon

The Institute of Business Ethics today publishes a Board Briefing aimed at helping remuneration committees identify and address challenges in awarding executive pay. Current approaches are too complicated, and the outcomes too uncertain, the report says. The decisions facing remuneration committees are often very difficult. Most try hard to do the right thing, but executive pay needs to work better or be reformed, the Briefing says.

Fair or Unfair? Getting to grips with executive pay offers both practical advice on how remuneration committees can address the challenge and some pointers to possible reform centred around the need to be clear about the value of what is being awarded and the pace at which remuneration is earned.

A good test is whether the remuneration committee can explain outcomes in a way that ordinary people can understand, which will help business in the political debate and, more importantly, help restore public trust.

The rapid increase in executive remuneration over the past couple of decades, high levels of reward for average performance, and occasional examples of reward for failure, suggests the present system in the UK does not really deliver the right incentives. Excess in executive pay has caused loss of trust among external stakeholders, including customers, sapping employee morale and causing reputational damage with policy-makers, regulators and the broader public. In IBE surveys it consistently ranks as one of the top issues the public think business needs to address. 

The IBE Board Briefing offers some pointers to reform:

  • Greater reliance on cash as a starting point, even though some of it should then be used to buy shares in the market which would be held for the long term
  • Greater scepticism towards dilutive use of shares
  • Less emphasis on short term bonuses; and much longer time horizons than previously seen.

The Board Briefing suggests that two requirements are paramount. First, remuneration committees must have a clear sense of the value of what is being awarded. There is substantial doubt whether this is the case at present, despite conscientious attempts to calculate the net present value of the packages they approve. Second, remuneration committees need to do more to justify the amount they have set.

Fair or Unfair? Getting to grips with executive pay explores seven challenges which remuneration committees face and suggests ways in which these challenges can be dealt with.

  1. Does the remuneration committee know the value of the rewards being delivered?
  2. Will the performance conditions really promote the desired behaviour?
  3. Who really sets the bonus and long-term performance targets?
  4. Does succession planning reduce the pressures?
  5. Should executives receive a bonus for good management in a crisis or downturn where shareholders have lost money and jobs have been lost?
  6. What account should remuneration committees take of pay and conditions elsewhere in the company?
  7. Should remuneration be linked to culture and behaviour?

Peter Montagnon, IBE’s Associate Director and author of the report, said: “Fairness and simplicity are two themes running through this IBE Board Briefing. One of the reasons why executive pay has become so problematic is that it is too complicated and the outcomes often seem quite random. Another is because it enables some executives to earn very large amounts over a short period of time, while others reap only modest rewards. That can easily drive short term decision-making.

The link between remuneration and performance is not clear, so nobody, including sometimes the recipients, can tell what they are really being paid for. A system that operates like that is bound to attract charges of unfairness and trust will ebb away.

The more remuneration committees try to manipulate short term behaviour, the less likely they are to succeed. If their focus is on long term and sustainable growth in cash generation, they will be setting their company and its executives on a course for success.”

Philippa Foster Back CBE, IBE’s Director said: “Reform of executive pay needs to be urgently discussed, and it is good to see this starting to happen, but it will take a long time to implement. In the meantime this Board Briefing offers remuneration committees thoughts on how to make the system work better. The most difficult challenge of all is probably that there are no formulaic answers. All remuneration committees have to make judgements and choices all the time, most of which require a considerable amount of courage. This will be easier for them if they approach their task with a clear set of values, which should also be those espoused by the company they serve; a proper understanding of what they are trying to achieve; and a large measure of independence.”

Energy

Is Wood Burning Sustainable For Your Home?

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sustainable wood burning ideas

Wood is a classic heat source, whether we think about people gathered around a campfire or wood stoves in old cabins, but is it a sustainable source of heat in modern society? The answer is an ambivalent one. In certain settings, wood heat is an ideal solution, but for the majority of homes, it isn’t especially suitable. So what’s the tipping point?

Wood heat is ideal for small homes on large properties, for individuals who can gather their own wood, and who have modern wood burning ovens. A green approach to wood heat is one of biofuel on the smallest of scales.

Is Biofuel Green?

One of the reasons that wood heat is a source of so much divide in the eco-friendly community is that it’s a renewable resource and renewable has become synonymous with green. What wood heat isn’t, though, is clean or healthy. It lets off a significant amount of carbon and particulates, and trees certainly don’t grow as quickly as it’s consumed for heat.

Of course, wood is a much less harmful source of heat than coal, but for scientists interested in developing green energy sources, it makes more sense to focus on solar and wind power. Why, then, would they invest in improved wood burning technology?

Homegrown Technology

Solar and wind technology are good large-scale energy solutions, but when it comes to small-space heating, wood has its own advantages. First, wood heat is in keeping with the DIY spirit of homesteaders and tiny house enthusiasts. These individuals are more likely to be driven to gather their own wood and live in small spaces that can be effectively heated as such.

Wood heat is also very effective on an individual scale because it requires very little infrastructure. Modern wood stoves made of steel rather than cast iron are built to EPA specifications, and the only additional necessary tools include a quality axe, somewhere to store the wood, and an appropriate covering to keep it dry. And all the wood can come from your own land.

Wood heat is also ideal for people living off the grid or in cold areas prone to frequent power outages, as it’s constantly reliable. Even if the power goes out, you know that you’ll be able to turn up the heat. That’s important if you live somewhere like Maine where the winters can get exceedingly cold. People have even successfully heated a 40’x34’ home with a single stove.

Benefits Of Biomass

The ultimate question regarding wood heat is whether any energy source that’s dangerous on the large scale is acceptable on a smaller one. For now, the best answer is that with a growing population and limited progress towards “pure” green energy, wood should remain a viable option, specifically because it’s used on a limited scale. Biomass heat is even included in the UK’s Renewable Heat Initiative and minor modifications can make it even more sustainable.

Wood stoves, when embraced in conjunction with pellet stoves, geothermal heating, and masonry heaters, all more efficient forms of sustainable heat, should be part of a modern energy strategy. Ultimately, we’re headed in the direction of diversified energy – all of it cleaner – and wood has a place in the big picture, serving small homes and off-the-grid structures, while solar, wind, and other large-scale initiatives fuel our cities.

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Energy

7 Benefits You Should Consider Giving Your Energy Employees

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As an energy startup, you’re always looking to offer the most competitive packages to entice top-tier talent. This can be tough, especially when trying to put something together that’s both affordable but also has perks that employees are after.

After all, this is an incredibly competitive field and one that’s constantly doing what it can to stay ahead. However, that’s why I’m bringing you a few helpful benefits that could be what bolsters you ahead of your competition. Check them out below:

Financial Advising

One benefit commonly overlooked by companies is offering your employees financial advising services, which could help them tremendously in planning for their long-term goals with your firm. This includes anything from budgeting and savings plans to recommendations for credit repair services and investments. Try to take a look at if your energy company could bring on an extra person or two specifically for this role, as it will pay off tremendously regarding retention and employee happiness.

Life Insurance

While often included in a lot of health benefits packages, offering your employees life insurance could be an excellent addition to your current perks. Although seldom used, life insurance is a small sign that shows you care about the life of their family beyond just office hours. Additionally, at such a low cost, this is a pretty simple aspect to add to your packages. Try contacting some brokers or insurance agents to see if you can find a policy that’s right for your firm.

Dedicated Time To Enjoy Their Hobbies

Although something seen more often in startups in Silicon Valley, having dedicated office time for employees to enjoy their passions is something that has shown great results. Whether it be learning the piano or taking on building a video game, having your team spend some time on the things they truly enjoy can translate to increased productivity. Why? Because giving them the ability to better themselves, they’ll in turn bring that to their work as well.

The Ability To Work Remotely

It’s no secret that a lot of employers despise the idea of letting their employees work remotely. However, it’s actually proven to hold some amazing benefits. According to Global Workplace Analytics, 95% of employers that allow their employees to telework reported an increased rate of retention, saving on both turnover and sick days. Depending on the needs of each individual role, this can be a strategy to implement either whenever your team wants or on assigned days. Either way, this is one perk almost everyone will love.

Health Insurance

Even though it’s mandated for companies with over 50 employees, offering health insurance regardless is arguably a benefit well received across the board. In fact, as noted in research compiled by KFF, 28.6% of employers with less than 50 people still offered health care. Why is that the case? Because it shows you care about their well-being, and know that a healthy employee is one that doesn’t have to worry about astronomical medical bills.

Unlimited Time Off

This is a perk that almost no employer offers but should be regarded as something to consider. According to The Washington Post, only 1-2% of companies offer unlimited vacation, which it’s easy to see why. A true “unlimited vacation” program could be a firm’s worse nightmare, with employees skipping out every other week to enjoy themselves. However, with the right model in place that rewards hard work with days off, your employees will absolutely adore this policy.

A Full Pantry

Finally, having a pantry full of food can be one perk that’s not only relatively inexpensive but also adds to the value of the workplace. As noted by USA Today, when surveying employees who had snacks versus those who didn’t, 67% of those who did reported they were “very happy” with their work life. You’d be surprised at how much of a difference this could make, especially when considering the price point. Consider adding a kitchen to your office if you haven’t already, and always keep the snacks and drinks everyone wants fully stocked. Doing so will increase morale tremendously.

Final Thoughts

Compiling a great package for your energy company is going to take some time in looking at what you can afford versus what’s the most you can offer. While it might mean cutting back in other areas, having a workforce that feels like you genuinely want to take care of them can take you far. And with so many different benefits to include in your energy company’s package, which one is your favorite? Comment with your answers below!

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