Equiniti ezine | September 2011

EZINE > SEPTEMBER 2011 INSIDE THIS ISSUE: BENCHMARKING THE BOARD What are the benefits of external board evaluation and how does it work best?

A STITCH IN TIME Is your pension scheme future-proofed against further corporate governance changes?

WHAT HAPPENED IN WEYBRIDGE? Another oustanding ESP Forum – that's what!

WOMEN IN THE BOARDROOM The drive to promote diversity at director level PAYROLL OUTSOURCING Our useful checklist will help you to obtain the best possible value from your supplier

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UK plc needs more women in the boardroom

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BOARD EFFECTIVENESS

Robert Armour of Coefficient looks at how to evaluate board performance, and considers the benefits of external evaluation

ASSESSING BOARD EFFECTIVENESS – AND GETTING BUY-IN The new UK Corporate Governance Code reflects widespread concern that there was a lack of rigour in how some companies approached board evaluation, particularly in the light of a string of high-profile corporate failures.

Like its predecessor, the main principle of the new Code states that a company board should conduct a rigorous annual review of its own performance and that of its committees and directors. However, the Code goes one step further: it also requires external facilitation of the board evaluation at least every three years for FTSE 350 companies.

The challenge now for boards lies in satisfying the Code requirements without undermining the cohesion of the board.

The FRC’s Guidance on Board Effectiveness provides a number of recommendations to support boards in meeting this challenge.

Tackling annual reviews

An external voice can prompt greater rigour in evaluations

The annual review should examine the effectiveness of the board as a unit; its strengths, shortcomings and performance.

Its focus should be tailored to suit the individual business.

So what is the best way of getting directors’ views for the annual review? Questionnaires are convenient and efficient, but they can become stale. Web-based surveys drawn from a wide bank of questions make it easier to refresh the focus annually, resulting in a more engaging process. Interviews are more time consuming but do often prompt more in-depth discussions.

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BOARD EFFECTIVENESS Whichever approach is adopted, it’s crucial to encourage board members to comment on substantive areas of concern. The board should also consider opening questionnaires up to the wider management group or external managers, who can deliver valuable and illuminating feedback.

The results of the analysis should be discussed in depth, ideally at a separate board meeting, and members of the board should have time to review the report in advance. Unfortunately, many boards stop at the discussion stage.

Instead, there should be clear follow-up actions, and conclusions from one year should inform the questions posed in the following year’s evaluation. Good intentions are not enough: clear objectives, monitoring and measurement throughout the year are key to embedding the improvements.

Independent reviews: where to start?

An external voice can prompt greater rigour in evaluations, forcing boards to face up to difficult issues and acting as a catalyst to

tackle uncomfortable truths. Externals can also be helpful in delivering difficult messages coming out of a review.

The task of appointing an external facilitator can be a tricky one. The role requires independence coupled with board experience and a good understanding of governance and people skills. The board should interview a selection of providers (bearing in mind the need to avoid any conflicts of interest) and give the appointed reviewer a clear outline of the key issues, tailored to the specific company.

The review should go beyond individual interviews and examine inputs and outputs from the board. It is worth remembering that while external advisers have a greater ability to compare boardroom styles, you may need to read between the lines to interpret delicate criticism.

The facilitator should produce a report, giving an assessment of the board’s effectiveness across the range of topics agreed and

To read Robert’s article in PLC Magazine, please click here CLICK HERE TO READ THIS STORY ON THE EQUINITI WEBSITE

suggesting areas for improvement or attention. Following a presentation to the board, there should be time for all the issues to be discussed and proposals put forward.

As with the annual review, an action plan needs to be implemented, and it should contribute to the objectives for the next annual review. Companies who do not explain the process and the key themes in their annual report are missing a trick – investors welcome a board’s interest in pursuing good governance. The review process shows that boards are open to improvement, it’s a concept that companies should embrace, and which will, inevitably, extend further over time.

IF YOU WOULD LIKE MORE INFORMATION: If you’re interested in learning more about Coefficient’s Board Review services or its Evalu8 tool to assist with annual board performance reviews please contact Robert Armour or David Venus on 01372 478127, or email robert.armour@coefficient.org.uk PENSIONS GOVERNANCE > PAGE 4

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PENSIONS GOVERNANCE

Alex Davies, Director of HR Trustees, asks if your company’s pension scheme is future-proofed for governance changes

PENSIONS GOVERNANCE: A STITCH IN TIME...

Poor governance of Defined Contribution (DC) pension schemes is one of the biggest threats to effective pension provision in the UK, according to the Pensions Regulator.

The regulator’s fifth governance survey revealed that only 40% of 600 occupational DC schemes think their governance is very effective. Unless matters improve, the regulator may resort to the kind of draconian enforcement measures that it has introduced for Defined Benefit (final salary) pension schemes.

The DC universe

DC is widely considered the future of workplace savings, because final salary schemes are just too expensive. The introduction of auto-enrolment from 2012 will make pension provision and employee participation compulsory for all but the smallest employers.

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PENSIONS GOVERNANCE There are a number of options open for employers: ■■ Traditional

trust-based occupational

schemes ■■ Master trust arrangements ■■ Contract-based scheme (such as Group Personal Pensions and Stakeholder Plans) ■■ The National Employment Savings Trust (NEST) ■■ A combination of the above Employers who do not want to use NEST will have to ensure that their existing scheme(s) meet the auto-enrolment requirements, or amend the scheme so that it does. All of this will increase the focus on governance.

Research also shows that members are less likely to make individual choices when there is a wide range of funds on offer.

High levels of charges can significantly reduce the level of members’ benefits, but developments within the pensions market mean that levels of charges are reducing.

A change in provider could potentially improve the outcomes for your employees.

Default or choice?

The Pensions Act 2008 requires any scheme that is used for auto-enrolment to offer a default option – which research shows is selected by more than 90% of members.

It is therefore important that the default option remains relevant and appropriate, especially given the changing investment environment. The default should be reviewed on a regular basis along with any other funds offered to members.

Perhaps surprisingly, research also shows that members are less likely to make individual choices when there is a wide range of funds on offer. This highlights the importance of making fund options succinct and outlining a clear objective. Members who have made choices should regularly review these to ensure they remain appropriate.

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Take action now

With auto-enrolment fast approaching, a poorly designed or badly run scheme will affect a larger number of employees, making it harder to resolve any problems. Now is the time for companies to ensure their arrangements are fit for purpose – ensuring not only that the design is right, but also that the administration protocols are in place to meet auto-enrolment requirements.

HR Trustees Limited has many years’ experience of pension scheme governance and is well placed to help employers and trustees improve their scheme.

IF YOU WOULD LIKE MORE INFORMATION: If you would like to discuss any issues regarding your DC governance, please contact: ■■ Alex Davies on 0118 918 5449 alex.davies@hrtustees.com ■■ Esther White on 0118 918 5491 esther.white@hrtrustees.com ■■ Giles Payne on 0118 918 5559 giles.payne@hrtrustees.com ESP FORUM 2011 > PAGE 6

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ESP FORUM 2011

Networking event’s eighth year highlights best practice and discusses industry hot topics

ANOTHER SUCCESSFUL EQUINITI ESP FORUM On 8 September 100 Equiniti clients and staff arrived at Mercedes Benz World in Weybridge for the eighth annual ESP Forum. The event was a great success, with interactive panel discussions and case studies delivered by leading industry names such as Marks & Spencer, BT and TalkTalk. Break-out and plenary sessions focused on market updates and hot topics such as corporate governance and flexible benefits.

As a leader in its field, Equiniti aims to provide valuable advice and information, whilst encouraging clients to interact, develop and share industry knowledge through these networking events. Feedback was extremely positive, with many clients saying that this is the most valuable and informative forum in the industry. A number cited the case studies as particularly valuable as they provide unique insight into how peers dealt with the challenges of offering share plans and the comparison

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between Talk Talk and M&S was an excellent demonstration of the differing needs of companies. Talk Talk provided a very interesting look behind the scenes at how they delivered a Sharesave invitation in just 6 working days whilst M&S gave an engaging look at just what could be achieved with enough time to plan and interact with employees.

A number of sessions discussed or at least touched on the increasing use of technology and this was certainly an underlying theme for the day but it was also clear from a lot of the sessions that there is a growing challenge to really integrate employee share plans into the wider reward and benefits structures. Speakers from Xafinity and Parsons Brinckerhoff delivered an excellent presentation on the complexity of delivering a flexible benefit scheme to a diverse demographic and a number of delegates commented on how this mirrored their own challenges.

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ESP FORUM 2011 It was clear from some of the presentations that there are challenges ahead and themes like auto-enrolment and claw-back seem set to form a part of next year’s Forum alongside the ever present legislative and taxation challenges.

After the conference, delegates were treated to a high-speed drive around the race track, and a gala dinner provided the perfect end to a great event. Equiniti would like to thank all the speakers and delegates who attended – plans are already underway for next year!

READ ON FOR SOME FEEDBACK FROM ATTENDEES: “It was a great day, and I certainly enjoyed it. It is always good to have an opportunity to catch up with your peers in a relaxed setting.”

Alan Daniels, M&S

“Great day, great company as ever.”

Phil White, Drax Power

“I thought the venue selection was superb and the driving experience an added bonus to the day. The conference itself was well organised and I liked the fast pace of the day. The breakout sessions were good and I found the case studies and trustee presentation particularly useful.

It was a brilliant event – can’t wait for next year!”

Lesley McFee, Pearson

IF YOU WOULD LIKE MORE INFORMATION: Find out how Equiniti can help manage your employee share plans – speak to John Daughtrey on 01903 693398 or email john. daughtrey@equiniti.com CLICK HERE TO READ THIS STORY ON THE EQUINITI WEBSITE

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DIVERSE WOMEN

David Venus, Director of David Venus & Co, tracks progress towards introducing more women to corporate boardrooms

DIVERSITY MATTERS The deadline by which all FTSE 350 companies must announce their targets for boardroom diversity is fast approaching.

FTSE 350 chairmen and chief executives have received letters from Vince Cable and Theresa May reminding them that they have until September to announce the percentage of women they aim to have on their boards in 2013 and 2015.

This flurry of activity follows a number of initiatives to increase the representation of women on listed plcs. These include: ■■ The

revised UK Corporate Governance Code included for the first time a principle recognising the value of diversity in the boardroom.

■■ The

‘Women on Boards’ report (published in February 2011 by Lord Davies of Abersoch) recommended that FTSE 100 companies should aim for at least 25% female representation on boards by 2015, and FTSE 350 companies should set their own targets on female representation.

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DIVERSE WOMEN ■■ Chairmen

of FTSE 100 companies and organisations committed to boardroom diversity launched the 30% Club, whose members voluntarily support a 30% target by 2015.

■■ The

FRC consultation document ‘Gender Diversity on Boards’ recommends a new supporting principle to the UK Code that “evaluation of the board should consider the balance of skills, experience, independence and knowledge of the company on the board” including its policy on gender diversity.

■■ In

June, the European Parliament called for EU-wide legislation to ensure women make up 40% of listed company boards by 2020.

■■ The

Association of British Insurers is to issue new guidelines this year to prompt companies to bring more women onto their boards.

So why this flurry of action? Well, to many it seems incongruous that half of society is represented by only 13.9% of FTSE 100 board members, with that number falling to 8.7% when taking into account the FTSE 250.

Boards are intellectually and socially enriched by the presence of women and consistently more effective through balanced judgement and opinion in decision-making.

Of those countries with a voluntary policy, this compares with the European average of 11.9%, led by Germany, which has 15% female representation. In the US there was some success 10 years ago in securing greater representation by women in US boardrooms, but progress has since plateaued. A recent survey of the Dow 30 showed that 27 companies considered diversity when identifying potential directors, but that only one had a policy of board diversity.

The initiatives in the UK seek a voluntary change, but there are calls from the European Parliament and others for quotas backed by legislation. Norway introduced quotas in 2003

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by legislating for companies to reserve 40% of board seats for women by 2008. Spain followed suit in 2007 and France this year. Holland and Germany are currently debating the issue.

A question of balance and challenge

This all matters. The financial crises of 2008 highlighted a concern that there is a lack of diversity of views and challenge in the boardroom, particularly in some larger institutions. In February 2011 there were still 19 FTSE 100 companies without a female director. This seems extraordinary, given that at least 50% of consumers are female.

Many believe that a middle-aged, middle class, monochrome board of the male gender cannot give a company the best chance of adopting the optimal business strategies and risk models for success. As Sir Roger Carr says: “Boards are intellectually and socially enriched by the presence of women and consistently more effective through balanced judgement and opinion in decision-making.”

Gender diversity is just part of it. As the Institute of Directors has stated, Boards need also to assess their entire diversity profile CONTINUED ON PAGE 10

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DIVERSE WOMEN including professional background, education, sector experience, nationality, age and personality.

Way back in 2003 the half-forgotten Tyson Report looked at these important issues. At the invitation of the then DTI, Laura Tyson of the London Business School chaired a group to look at how ‘diversity in the backgrounds, skills, and experiences of NEDs enhances board effectiveness by bringing a wider range of perspectives and knowledge to bear on issues of company performance, strategy and risk’. Despite being well received, the Tyson Report did not bring about significant change.

Circumstances are now very different.

Business buy-in

We wait to see whether Vince Cable’s exhortations will be successful. There is however one female who will not now be appointed to a board which will cause him no angst! Elisabeth Murdoch, daughter of Rupert Murdoch, recently announced that she will not, after all, join the board of News Corp.

In announcing the news Viet Dinh, Chairman of the Nominating and Corporate Governance Committee of News Corp, said that “both Elisabeth and the Board hope this decision reaffirms that News Corp aspires to the highest standards of corporate governance and will continue to act in the best interests of all stakeholders”. Incidentally, News Corp has one woman on its 17-strong board.

In the coming months we are likely to see increasing pressure from Government and regulators for FTSE companies to buy into the 30% target by 2015. Progress has already been made: it was recently reported that 30% of all appointments this year to FTSE boards have been female. This trend will need to continue and indeed accelerate if those calling for firm quotas, backed by legislation, are not to carry the day.

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OUTSOURCING

For many organisations, the question of outsourcing payroll to an external supplier can be fraught with worry. Are you giving away control? How can you ensure a good level of service? Rachel Daly, senior consultant at Equiniti ICS, provides a survival guide

PAYROLL OUTSOURCING: YOUR CHECKLIST It is not surprising that many organisations feel daunted by the prospect of outsourcing their payroll and HR functions. Pay is after all a highly emotive issue, and businesses often wish to retain control of this most crucial of business operations. Yet there are considerable benefits to entrusting payroll services to a good external supplier – benefits such as risk reduction and value for money.

The obvious starting point in considering outsourcing is to ask ‘What are the strategic aims of the business?’ and ‘How would outsourcing (or staying in-house) help to achieve those objectives?’

The size of your organisation is a key consideration. Because payroll is businesscritical, many organisations employ more people

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OUTSOURCING than they truly need in order to cover for absence. In this case, outsourcing can deliver economies of scale. Conversely, very small organisations will often have one finance administrator looking after payroll as and when needed, while very large organisations will already benefit from a natural contingency in-house. For medium sized organisations however, hiring an external supplier delivers cost savings while at the same time providing contingency and risk reduction.

It also carries the benefit of creating a more formal pay process. Consider for example an in-house payroll team that is underperforming. Addressing that situation requires performance management, training and in extreme cases disciplinary action, and all the upset that goes with that. An external provider on the other hand, is bound by a Service Level Agreement. The relationship is easier to manage because it is professional and contractual.

Finally, in these troubled economic times, businesses are focusing all their efforts on delivering services, products and profits. By outsourcing back-end payroll tasks such as

data entry, staff time is freed up to focus on activities that add value to the business.

What to do next?

Having weighed up the benefits, you have decided to outsource your payroll to an external supplier. But which supplier?

Provided below is a checklist for choosing a company you can rely on.

1. Look for robust processes As a consultant at Equiniti ICS, I know from experience that when handing over control of their payroll, what every organisation wants to know is whether you are as good as you say you are. That means not only saying you have robust processes, but proving it. Any good supplier should be able to provide evidence of proven project methodology and high service levels and proven quality, for example through accreditation such as ISO 9001. Their processes should be subject to internal audit and quality checks, and they should be able and willing to provide references.

If you’re changing to a new supplier, you need reassurance that the new supplier can guarantee the ‘go live’ date. Essentially, you are looking for absolute peace of mind.

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2. Ask for what you want Flexibility is very important, and you will get a sense of this early on in discussions.

One of the major benefits of outsourcing is that you get the right balance of flexibility without compromising the main pay run. Many suppliers will assume a certain standard for their clients, so in early meetings it’s important to speak up if you want more, and ask the question ‘Is this possible?’ Take the opportunity to get what you want. The service should match the organisation, not the other way round.

3. Accuracy, accuracy, accuracy It’s absolutely the key criteria in payroll.

Naturally, employees depend on being paid correctly and on-time in order to meet their own financial responsibilities, such as mortgage payments and direct debits.

Get this wrong, and you will quickly lose employee trust and morale can dip. On the flip side, overpayments are also a very big issue that is extremely costly to the company.

Look for a supplier with proven levels of accuracy and high targets. The benchmark should be set at around 99.5% accuracy.

That sounds high, but if you have 10,000 CONTINUED ON PAGE 13

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OUTSOURCING staff, even an error rate of 0.5% adds up in terms of how it affects your employees.

4. Automated is best...

As much of the payroll process should be automated as possible – manual calculations create a weak point for errors to slip through. Electronic data capture technology can greatly improve accuracy. For example, in the NHS or in retail, employees often work on timesheets across different locations, and the biggest payroll challenge lies in capturing that information. Instead of faxing timesheets for manual entry, managers can input the information into a web-based browser that feeds directly into the payroll system, removing one stage of manual handling. It would be prudent to ensure your supplier has HMRC-accredited software and a good reporting tool to keep track of what’s going on. It’s also important to check that the technology is future-proof (you don’t want to move to a supplier whose software will soon be obsolete) and to think ahead about your own requirements too.

Consider not only what your business needs now, but also what it may need a few years down the line.

5. ... but don’t miss out on personal service At Equiniti ICS we don’t run a helpdesk. We have named people who look after specific clients on a one-to-one basis, overseeing every aspect of their payroll service. That allows us to give quick responses to any queries they have and ensure we’re achieving the key performance indicators outlined in the SLA. Make sure you meet the people who will be handling your account, and ask for regular service reviews and performance feedback.

Remember to keep your supplier updated on your business too – a proactive, two-way communication flow is essential to a strong client/supplier relationship.

6. Protect your data Pay data is some of the most sensitive information a company holds, containing details of salary, sickness records, Union membership and more. Your supplier should be registered under the Data Protection Act, and ISO 27001 is also a useful marker of high security standards.

Always ask where your data is held and who can access it. There should be security in the networks, including firewalls and malicious software protection, and server rooms should

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be protected by infra-red sensors and intruder alerts. Security should also be tight in terms of who has access to your data, with username and passwords set to different security levels and controlled access to areas where sensitive data is held.

7. Do your homework It goes without saying that you should look for a supplier who is financially stable and has a good reputation. Follow up on the references they provide and find out who you will be dealing with on a day-to-day basis. If possible, take the time to visit their office and meet the key people face-to-face before you sign the contract. Within your own business, consider how outsourcing payroll will affect other departments such as IT, HR and finance.

Find out what they would like to get from the agreement, as their support is valuable in managing the relationship going forward.

IF YOU WOULD LIKE MORE INFORMATION: For more information, please email Rachel Daly at rachel.daly@equiniti-ics.com or phone her on 01635 262080 CONTINUED ON PAGE 14

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OUTSOURCING

What our client says A good payroll provider should provide strong client testimonials as well as the relevant accreditations and leading technologies. Here’s what Leeds Building Society has to say about Equiniti ICS Leeds Building Society began its partnership with Equiniti ICS in 2005, moving for the first time to a combined payroll and HR database.

The decision to move to Equiniti ICS was the result of a full tender process and the consideration of both current and future needs. Leeds Building Society required a system functionality that was, at one end of the scale, completely secure, reliable, easy to use and supported by great customer services, together with the ability to develop new solutions to drive efficiencies, cope with diversifying system requirements and potentially provide bespoke solutions to enable the HR function to meet the needs of the business.

The last three years have been a journey, with the first months focussing on embedding the basic processes and establishing the relationship between the two businesses.

Staff at Equiniti ICS have always been keen to understand the needs of the Society and have invested both time and effort in ensuring that they listen to our requirements, agree a way forward and deliver a solution. On occasions where ‘niggles’ have occurred, which is always the case when implementing complex processes, Equiniti ICS have always risen to the challenge and ensured that they have delivered.

The second stage of implementation was a full review of some of the Society’s own processes and a broader understanding of how the Equiniti ICS system could help the Leeds Building Society HR team deliver more effectively. Equiniti ICS worked in partnership with members of the HR team to provide further insight into the capability of the software, share best practice from other users and refine how we were using the system.

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Over the last 18 months or so, the Society has started to reap the rewards of a combined payroll and HR database, through the addition of the use of the recruitment module (developed in partnership with Equiniti ICS) and the introduction of elements of eHR, including absence management. Future plans include the linking of an online recruitment application form to the HR database and further efficiencies through the development of eHR functionality.

In addition to the system developments, the Society has developed such a good working relationship that a payroll administrator position has been outsourced to Equiniti ICS. The outsourcing provides a reduction of direct staff costs, access to ‘in-house’ expertise and the removals of concern regarding staff cover for holidays and other absence.