FTSE-100 companies fall short in reporting workforce issues

• Best practice still the exception, not the rule
• Many companies fail to disclose issues beyond minimum statutory requirements
• Overwhelming majority of companies provide only positive information
• Meaningful reporting on issues such as mental health, the ethnicity pay gap and age diversity remains rare

New research by the Pension and Lifetime Savings Association (PLSA) and the High Pay Centre shows FTSE-100 companies still have some way to go to achieve best practice on reporting employment practices despite increased public scrutiny and regulatory focus on disclosure.

The latest review of disclosure practices in the annual reports of the largest listed companies in the UK, Hidden Talent Part 2: Has workforce reporting by the FTSE 100 improved?, builds on a similar report based on research conducted in June 2017. 

With £2.2 trillion of assets under management, pension scheme investors wield significant influence in encouraging corporate best practice and success. They demand high levels of disclosure around employment practices because companies that look after their workforces tend to outperform their competitors. The research is especially relevant ahead of the end of financial year when many companies will report their earnings, but also in the context of a slump in UK productivity growth.

Across the themes of workforce composition, stability, skills and capabilities, and engagement, there were some instances where workforce reporting by FTSE 100 firms had improved. These included more reporting of aggregated turnover rate (31% as of December 2018 vs 18% in June 2017), proportion of full- and part-time staff (11% vs 4%) and evidence of motivation and commitment towards corporate goals, such as employee awards and schemes designed to foster teamwork (54% vs 30%).

However, there remains significant room for improvement in reporting on other key workforce issues. Meaningful reporting on issues achieving prominence in recent policy debates such as mental health (where just 3% of companies disclose mental health sickness rates), the ethnicity pay gap (3% disclosure) or age diversity (7% disclosure) remains rare. The PLSA hopes this will improve over time, particularly as new regulation comes in, although forward-looking companies should be expected to go further.

The report also found that:

• More than half (51%) of FTSE-100 companies report the gender pay gap at the director and managerial level and 52% report this at the whole-of-workforce level.
• Blue chip companies reporting time lost to injuries rose to 31% in December 2018 from 26% in June 2017.
• Disclosure of the level of employee share ownership also improved from 5% to 18%.
• The majority of companies (81%) now report on supply chain ethics in their annual statements.

Caroline Escott, Policy Lead: Investment & Stewardship at the PLSA and author of the report, said:

“High-quality workforce reporting is key to better outcomes for companies, investors, and workers. Therefore, investors, policymakers and civil society must continue to push companies to provide better information in these areas.

“The PLSA supports better quality reporting from companies on workforce issues through a number of initiatives. In addition to our reporting since 2015, our Corporate Governance Policy and Voting Guidelines provide practical guidance for pension schemes considering how to exercise their vote at AGMs and specifically highlights workforce concerns as a material issue.”

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Committee said in the foreword to the report: 

“I have often heard companies say that ‘people are our greatest assets’. Yet in many cases, the reality fails to match the rhetoric. Fair pay is vital for maintaining staff morale, but most companies have significant gender pay gaps and are too slow to develop the policies likely to reduce them. 

“Pension schemes in particular, with their long-term investment horizons and £2.2tn of assets under management, are well placed to influence companies for long-term economic success. We look to them to engage positively and drive good corporate governance. I believe there is a strong link between good governance and strong performance, and the evidence bears this out.”

Diandra Soobiah, Head of Responsible Investment at Nest said: 

“This report is a wake-up call for those FTSE-100 companies who are not being transparent enough on how they’re investing in and supporting their workforce. This is important because a company’s workforce is a key driving force for long-term success.

“NEST has more than seven million members. We believe they want their money invested in successful and sustainable companies which treat their workers decently and provide good quality jobs. We therefore need meaningful information that helps us understand where companies stand on issues like fair pay, diversity and mental health.”

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