Active ownership Q&A: How we’re influencing companies over workforce issues
Against the backdrop of a cost of living crisis, how can companies successfully recruit, develop and retain top talent?
The global workforce is growing, and so are its challenges. There were around 3.32 billion people employed worldwide in 2022, compared with 2.28 billion people in 1991, an increase of 46%, according to data from Statista.
Though there was a fall in global employment between 2019 and 2020 due to the Covid-19 pandemic, in general the global workforce is growing and is only fractionally behind what it was.
But as the global workforce grows, the cost of living crisis has intensified pressure on companies to support vulnerable or lower paid workers.
And recent corporate failures have shown that that workforce issues can make or break a company. In this Q&A, Katie Frame, Social Engagement Lead; Lucy Larner, Engagement Associate; and Marina Severinovsky, Head of Sustainability, North America, explain how treatment of employees is an important driver of performance and how they engage with companies over what’s sometimes referred to as human capital management.
What is human capital management and why do we need to engage with companies we invest in over this topic?
Katie Frame (KF): “Human capital management refers to how a company acts with respect to people working within the direct operations of a company, and includes the practices to recruit, retain and develop staff. It’s an important issue in our interactions with companies we’re invested in because people in an organisation can give it a competitive advantage. Good people management is essential for a company to innovate and create long-term value.”
What sort of workforce management issues are important?
KF: “We have identified four important areas: corporate culture; investment in workers, including pay; worker voice and representation; health safety and wellbeing.
“We have seen that poor culture has been a feature of numerous corporate failures in recent years, for example.
“Meanwhile evidence shows that paying workers a living wage leads to better health outcomes, and increased ability to recruit and retain staff, and increased productivity. However 19% of the world’s wage earners, 327 million workers, are paid at or below their countries’ minimum wage.
“We believe that investing in workers’ wages can bring material business benefits. Lower staff turnover and more productive workers both make for more profitable and durable businesses. Companies must be sensitive to the competitive pressures of their industries and blanket demands or approaches can be counter-productive if they result in reductions in workforce or increased costs of products, for example. But we consider the long run benefits an important goal all companies should work towards.
“There is also evidence that strong employee engagement contributes to increased profitability as engaged employees support innovation and growth.”
How much does your approach differ by sector or region and what trends have you noticed?
Lucy Larner (LL): “Not every company is exposed to the same human capital risks, or exposed to an equal degree. There are also significant regional differences in expectations which we consider in our engagement and expectations of companies.
“Where appropriate we have aligned our engagement expectations with those of the collaborative initiatives we are part of, including the Workforce Disclosure Initiative (WDI) and Human Capital Management Coalition (HCMC).”
Marina Severinovsky: “Treatment of workers is a top priority in the US. Corporates are under increasing pressure to be ‘good corporate citizens’, and this means paying workers fairly and offering a living wage that covers basic needs. Research from JUST Capital, the not-for-profit focused on helping companies serve all their stakeholders, has found workers and wages are more important to Americans than ever. In its latest survey, workers are most important as stakeholders across every demographic group, with pay being the top issue.”
What trends have you noticed?
LL: “Companies increasingly recognise the importance of supporting employees through difficult times. Many have taken a long term view by investing in their people.
“At the same time, higher paying companies have outperformed lower-paying competitors by over 3% annually over the past five years. In the UK, our analysis shows that more companies have become accredited Living Wage employers over the last year than over the previous five years combined.”
How have you pushed UK and European supermarkets to take action?
KF: “We have engaged with portfolio companies to encourage fair wages for many years. Our Engagement Blueprint has laid out that expectation in detail. We will continue to use our voice and influence to encourage companies to continue to invest in their most important assets.
“From September 2022 we have been engaging with our key UK and European supermarket holdings around the cost of living crisis. We set core expectations around using a fair, socially responsible approach to balancing their employees, customers and suppliers. The focus differed depending on current company practices.”
What have you discovered so far?
KF: “Most companies are acutely aware of the cost of living crisis and trying to do well by stakeholders, including shareholders. There are considerable complexities and gaps that remain around contractors, however there is a general openness to improving disclosure.”
How have you taken action on paid sick pay in the US?
LL: “Last year we reached out to numerous US companies in the retail and services sectors, to understand their approach to providing sick pay. We focused on these sectors as they have historically been the least likely to provide sick pay, and we wanted to understand how their policies have evolved since the pandemic.
“We asked the companies to establish a policy which provides sufficient provision of paid sick leave (PSL) per year, which is accessible to all employees. We believe these policies provide benefits to the company as well as to employees, ranging from increased productivity, reduced turnover and preventing the spread of disease in the workplace. ”
What have you discovered so far?
LL: “Companies’ policies vary significantly. Part-time workers tend to have less access to paid sick or family leave. Most companies have to adjust their policies based on local and state regulations, which adds administrative complexity and divergent policies. These complexities are also seen in franchise brands, as benefits policies may be handled differently among franchisees.
How else are you engaging with companies on this topic of workforce management? Can you give us a snapshot?
LL: “We encourage companies to go beyond compliance with local minimum wages to pay a living wage that allows for workers to live a decent life free from poverty. We also encourage companies to consider employee compensation and benefits in full to ensure the broad financial wellness of the workforce, recognising that basic wage levels are not the sole driver of worker financial wellness.
“We discuss how companies are investing in the development of their workforces, aligning skills with their long-term strategy and preparing for sector-wide transitions, such as the energy transition.
“We are also encouraging companies to get feedback their employees and track their engagement and motivation.”
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The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.