Most of us this last weekend were able to enjoy the admittedly slightly strange experience of being table-served in our local pub, and taking the bread of communion again (if not the wine) in our hymn-less churches and equivalent in local mandirs and mosques. But the poor parishioners of Leicester are continuing in full lockdown due to the local spike in corornavirus inspections, which had reached as high as half of the daily totals reported in the whole of England.

Leicester and Boohoo

Leicester is the story of the UK’s economy and employment since the last major recession in 2008/9 writ large.  And it highlights the choice now facing us as a nation, as employers and as individuals, in terms of whether we really do want to change our employment model, economy and society, to #buildbackbetter as the Prime Mister promised in Dudley last week. And whether we have learned anything from the dreadful experiences and tens of thousands of deaths of the last three months.

‘HONEY, you NEED these pj’s!’ Fast-fashion online retailer Boohoo told its half million Instagram followers in the first week of lockdown. And while traditional bricks-and-mortar based retailers with their good staff remuneration packages well above the legal minimum, such as John Lewis and M & S, initially struggled with the impact of closing their stores and re-organising their complex international supply chains, Boohoo was able to pivot almost immediately into home loungewear and sofa-clothes. April sales were, incredibly, up on last year and their share price has almost doubled since the middle of March.

Announcing annual profits of £92.2 million CEO John Lyttle highlighted the company’s ‘ability to be agile and flexible’, an agility heavily dependant on its supply chain of often Gujarati-owned and staffed factories in Leicester. The company now takes an estimated three-quarters of the city’s entire garment output.

Last Friday, the company’s remuneration committee was ‘pleased to announce’ details of a new share price-driven, three-year incentive plan ‘as the Group targets a continuation of the exceptional levels of performance that it has delivered since IPO, ensuring that the Group’s leadership team is motivated to deliver long-term sustainable growth (and) focused on members of the Group’s management, who are most able to impact the Group’s shareholder returns’.

The plan will pay out up to £50 million each to Lyttle, the Company’s two founders and a group of other senior executives. Boohoo trades on the lightly-regulated Aim small companies market, thus avoiding the requirement on larger quoted companies for a mandatory shareholder vote on its executive remuneration and incentive policy every three years.

Rewarding a British success story? If you are an executive perhaps. But probably not if you are one of the workers in those Leicester supplier factories. In 2018 an investigation by the Financial Times’ brilliant Sarah O’Connor found ‘a bizarre micro-economy of tiny sweatshops crammed into crumbling old buildings, out-competing legally compliant factories using expensive machines,  through illegally underpaid humans…paid £4 to  £4.50 an hour (the legal National Living Wage is currently £8.72 an hour if you are 25 or older)’.

Flexibility versus security in a pandemic

Leicester, rather than the Cambridge Science Park or Mayfair private equity offices, is the best and most representative example of the UK’s  flexible, ‘gig’ and market-driven, winner-takes-all, unequal economy, which has grown at pace since 2008.

After more than a decade of real pay cuts for most, widening pay differentials and the growth of this low-paid, ‘precariat’ workforce, we know that the Leicester economy and employment model is now far from unusual. My colleague Professor Sian Moore at the University of Greenwich has carried out similar research for the Low Pay Commission. Her team found common examples amongst the amazing care workers we have been applauding on Thursday evenings, as well as across other sectors, of zero hours contract employees electronically tagged so that they could be paid in 15 minute chunks; of workers too worried to take sickness absence as they feared being fired as a result and couldn’t live on just statutory sick pay anyway.

O’Connor’s work helped to stimulate a House of Commons Select Committee investigation last year which recommended wide-ranging changes in labour market and environmental practices in the fast-fashion sector. Yet as it reported, ‘Government rejects all recommendations to force fashion industry pay to clean up its act’.

Employers avoiding their responsibilities on pay and sickness, an employment deal so heavily weighted towards employer flexibility at the expense of worker security, suddenly seems less attractive once a pandemic inconveniently strikes. Campaign group Labour Behind the Label alleges that coronavirus has taken hold in some Leicester clothing factories, with rules on social distancing and protective equipment commonly flouted, and some never having closed since lockdown began. The Health and Safety Executive says it has contacted 17 clothing businesses in the city, was actively investigating three of them, and taking enforcement action against one.

Even before the pandemic, the government had recognised some of the downsides of the gig economy. It had adopted many of the recommendations from the review it commissioned by Mathew Taylor in its Good Work Plan. These focus on increased transparency and enforcement in the UK labour market.

Our experiences over the past three months, in highlighting the amazing contribution but appalling pay and conditions of many of our low-paid but no-longer low skilled keyworkers, might you would think reinforce a significant strengthening of the Good Work agenda. According to Paul Johnson of the IFS, ‘the world post-Covid-19 is likely to see many existing inequalities should lead us to reassess the value of an effective welfare system and collective security’. The UK has become a low skill, low pay, low productivity economy.  

A recent Financial Times editorial commented on the need for a new social contract with business, as ‘the pandemic has exposed the limitations of unfettered markets’; and ‘the frailty of the social contract’ which sees self-isolating keyworkers paid just £94.25 per week on SSP. It called for ‘radical reforms to forge a society that will work for all’. 

But with more than 10,000 redundancies announced last week, heavily concentrated in the retail sector, some feel that any jobs rather than secure, fairly rewarded, good quality jobs is what the government needs to concentrate on creating. As influential Tory Brexiteer Daniel Hannan put it last month, ‘when a million more people are on the dole, does anyone think it will be a priority to publish gender pay gaps’.  The government’s awful decision to cancel this years’ compulsory requirement to report this gap information a week before the deadline in April does not bode well, especially for low paid, insecure workers such as those in Leicester, more than two-thirds of whom are female.

So now is a critical decision point for government, employers and us all: investment or austerity, compassion or carnage?

The Way Ahead for Employment and Rewards

I would not question the need to ensure the affordability of any reward improvements and changes in an organisation; and clearly, the essential improvement of care and keyworker pay and conditions in the public sector will require major additional state investments.

But that is the point – they are investments. The research record on human capital investments is unequivocally that they pay off: for the individual, the employer and society. Purely focusing on short-term cost concerns will simply induce another decade of austerity, falling living standards and millions of low paid, low productivity workers and contractors ‘one pay cheque away from poverty’.

Mathew Taylor now believes that ‘The crisis has led us to recognise the importance of jobs that might previously have been seen as low status’; and so the government’s forthcoming employment bill should ‘be bold’ in areas such as employment status and enhancing protections for casual workers. The Good Work Plan now needs to be a foundation for far more extensive improvements, such as the removal of the confusing ‘worker’ status. 

One-way contractual flexibility and token board representation by a non-executive director I believe need to be replaced by genuinely two-way contractual negotiation, meaningful worker representation and far more extensive employee participation and ownership. There needs to be a statutory right to a permanent contract after 26 weeks, rather than just the proposed right to request one; with far more detailed reporting of human capital statistics beyond just pay ratios.

Gig economy and those Leicester clothing workers need improved security and benefits, funded by closer alignment of rates of taxation for the self-employed and agency workers with employed staff. Banning umbrella companies would be a stronger move rather than just the current proposal for better regulating them, while the proposed single labour market enforcement agency, as well as the HSE, need much greater power and funding.

As far as employer rewards are concerned, I have been working with a small group of fellow reward professionals on our Reward After the Pandemic charter, which defines the key questions they need to be answering to avoid a repeat of the post 2008, short-sighted anorexia on employee pay and conditions.

Employers we believe need to make permanent changes to prevailing pre-Covid orthodoxy, beyond the welcome job and pay guarantees and the immediate, voluntary executive pay cuts we have seen from some forward-looking employers in recent months. We need to see permanently improved pay and career progression opportunities for low paid workers. Allied to far more extensive sharing of the gains of future performance improvements as the economy recovers though profit sharing plans, perhaps making this a legislative requirement as in France, rather than just returning to the failing executive incentive model.

I am working with the High Pay Centre on their research into the new pay ratio reporting requirements.  They calculate that reducing the pay of the highest quartile of employees by just 3% could fund a median pay rise of £2,000 for the lowest earning quartile of employees in the companies they have reviewed.

Our group believes that a stronger emphasis on fair, collective and compassionate reward policies and practices in future would be a justified and highly beneficial outcome from the horror of Covid-19.

But we all will need to act to make that happen, if we are not to let the hard learning from this crisis go to waste.

Dr Duncan Brown is Visting Professor at the University of Greenwich and Principal Associate, IES