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REWARD SIGWebinar Series:

What Brexit Means for Employee Reward

How Brexit impacts HR

Demand for talent

Supply of talentManagement of

talent

BREXIT

Brexit – the employment law aspects for professionals in Reward

22 September 2016

Tarun Tawakley

The human impact of Brexit

Research published by Mercer in September 2016 (survey involved HR,

Talent and Reward Directors at 180 organisations) found that:

74 per cent of organisations reported that their employees were

“somewhat concerned” by the impact of Brexit; and

82 per cent of companies feel under a duty to communicate the impact

of Brexit to their employees but only 11 per cent have started doing so

openly.

Agenda

We will examine the possible outcomes and their impact, to inform our

internal decision making and to enable effective communication with our

staff.

What might Brexit look like?

How to retain our staff and access to the widest possible talent pool

post Brexit?

How might Brexit impact the way we look at managing and rewarding

our staff?

“Brexit means Brexit” – which means..?

No change until the UK triggers Article 50 of the Lisbon Treaty – which

commences a two year “notice period” for negotiating the mechanics of the

UK’s withdrawal.

This does not, necessarily, include the agreement of any new trade deals.

Possible outcomes:

The UK never leaves the EU (the “Nexit” option)

The UK joins the EEA (the “Norway” option)

Bespoke agreement to access the Single Market (the “Switzerland”

option)

Agreement with EU outside the Single Market (the “Canada” CETA

option)

No agreement with EU (the “WTO” option)

Norway option (“BINO” – Brexit in name only)

EEA membership

Four freedoms including single / internal market and free movement of people

EU employment law

Financial services passport

Financial contribution by the UK

Freedom to negotiate own trade agreements

No common agricultural and fisheries policy

Control over VAT

No vote on new EU laws

No lengthy period of negotiation

Norway option – EU Law

The Court of Justice of the

European Free Trade Association

States (“EFTA”) Court applies EU

law

EFTA cases can be important in

developing EU/EEA legal

principles

For example. Langeland v Norske

Fabricom [1995/96] (EFTA court

report 36) in which the EFTA court

ruled on the effect of the ARD in

respect of a Norwegian transfer

(overruling submissions by the

Norwegian and UK governments) and

confirming it was obliged to follow

the ECJ’s decision in Daddy’s Dance

Hall

Norway option – free movement, but emergency brake

Article 112 of the EEA agreement

“If serious economic, societal or environmental difficulties of a sectoral or regional nature liable to persist are arising, a Contracting Party may unilaterally take appropriate measures under the conditions and procedures laid down in Article 113

Such safeguard measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation…”

Exercised by Liechtenstein

EFTA member but not EEA

member (UK was a founder EFTA

member in 1960)

Bilateral agreements with EU

Unilateral adoption of ARD and

Collective Redundancies

Directive

Financial contribution

No financial services passport

2014 referendum (50.3% voted to

limit free movement). In response

- ultimatum from the EU

Switzerland option

Canada option

Freedom to amend employment and free movement laws

ILO core labour standards

No pre-entry visa requirement

What has David Davis said?

“The ideal outcome, (and in my view the most likely, after a lot of wrangling) is continued tariff-

free access. Once the European nations realise that we are not going to budge on control of

our borders, they will want to talk, in their own interest. There may be some complexities about

rules of origin and narrowly-based regulatory compliance for exports into the EU, but that is all

manageable.” (11 July 2016)

Free movement of people

Treaty right

Directly applicable

UK law through European Communities Act 1972

Current EEA migrants obtain right to permanent residence after 5 years

exercising their Treaty rights

Being a jobseeker, worker, self-employed, self-sufficient person or

student.

Rights to protect EEA national’s family

Retaining talent – outside of free movement

It is estimated that 3 million non-British EU citizens live in the UK.

Government position:

those granted permanent residence “quite clear” allowed to remain

exemptions for “highly skilled” workers including bankers and

businessmen

The remainder - “bargaining chips”?

Your staff - have they been exercising current EEA rights?

Documentation is required in some instances

Extended family members

Permanent Residence Card required for citizenship

Post-referendum:

Obtain documentation to formalise and prove exercise of treaty rights

Expect long processing times, 6 month deadline already not being met

Talent pools post “full-Brexit”

Visas may be required for EEA nationals to work in the UK

Current Points-Based System

Tier 2 for sponsored skilled workers

Extremely complex route[might be re-designed]

minimum salary thresholds

minimum skill levels

quota

not really points based.

Tier 3 for unskilled workers (never operational)

Tier 5 for temporary workers (creatives, sportspersons, interns etc)

Talent pools post Brexit

System like the Seasonal Agricultural Workers Scheme (SAWS)

Temporary work scheme, not leading to settlement

Employers pre-approved by ‘operators’ contracted by the Home Office

Migrants register with operators for work placement

Cap

Could be put in place for retail, construction and food processing

industries

Other consequences for talent

Eligibility for state pension

Eligibility dependent how national rules treat NICs earned in the UK post

Brexit.

Remain in the EEA? Unlikely to change. The UK has agreements with

EEA countries, Switzerland and various others (bilateral countries)

under which individuals can meet criteria for state pension -

https://www.gov.uk/new-state-pension/living-and-working-overseas

Outside the EEA? Dependant on bilateral agreements

Pension entitlements

Eligibility to transfer pension is dependent on the individual rules of

the scheme;

Restrictions under NEST to be removed in April 2017 – well before any

Brexit.

Impact of EU law

EU Treaty

Regulation Directive

RegulationsTreaty

provisions

Statutes and non-ECA

SIsECA SIs

European

Communities Act

European

Communities Act

EU law

Issue EU law UK law

Equal pay Article 157 TFEU; Equal

Treatment Directive

Equality Act

Discrimination Equal Treatment Directive;

Equal Treatment

Framework Directive; Race

Equality Directive; Charter

of Fundamental Rights of

the EU (Article 6 TEU)

Equality Act

Family rights Pregnant Workers

Directive; Parental leave

Directive (time off for

dependants & unpaid

parental leave)

Maternity & Parental Leave

etc. Regs; Management of

Health & Safety at Work

Regs; Various SMP Regs;

Employment Rights Act

EU law

Issue EU law UK law

Part and fixed term workers Part-time Workers Directive;

Fixed-term Workers

Directive

Part-time Workers

(prevention of less

favourable treatment) Regs;

Fixed-term Employees

(prevention of less

favourable treatment) Regs

Agency workers Agency Workers Directive Agency Workers

Regulations

Working time Working Time Directive Working Time Regulations

Collective rights Collective Redundancies

Directive; European Works

Council Directive;

Information and

Consultation of Employees

Directive

TULRCA; TICE Regs; ICE

Regs

EU law

Issue EU law UK law

TUPE Acquired Rights Directive TUPE

Health and safety Framework Health and

Safety Directive

ERA and various health &

safety Regs

Insolvency Insolvency Directive ERA

Written terms Contracts of Employment

Directive

ERA

Data protection Data Protection Directive

GDP Regulation

Data Protection Act

Posted workers Posted Workers Directive

Free movement Article 45 TFEU Immigration rules

UK employment law not derived from EU

Shared parental leave

Paternity leave

Unfair dismissal

Statutory minimum notice

Unlawful deductions from wages

Minimum wage

Statutory redundancy pay

Adoption leave and pay

Right to request flexible working

Public interest disclosure (whistleblowing)

European Communities Act 1972

Supremacy of EU law

Direct applicability and direct effect of EU law

ECA would need to be repealed

BUT what would replace it?

Generalised provision saying implementing law

continues unless amended?

Directly applicable/directly effective EU laws fall

away

Outstanding questions:

Continued supremacy of EU law?

Role of ECJ decisions?

Future impact of EU law

Possibilities

Re-interpret all EU-derived laws without reference to Directive or ECJ case law

No longer add words to domestic laws but otherwise take account of (binding/persuasive) EU law

Interpret consistently with ECJ case law pre-Brexit only

EU laws continue to be interpreted as giving effect to EU law but with UK right to over-rule through domestic laws

Swiss model

Laws implementing directives are purely national laws

EFTA Court / ECJ has no jurisdiction

Swiss Federal Supreme Court requires laws are implemented in line

with corresponding European legislation and relevant ECJ / EFTA

Court decisions have to be considered

EU-derived laws unlikely to change significantly

Discrimination / equal pay law

TUPE (automatic transfer principle)

Collective consultation

Data privacy

Employment law - likely changes

Free movement?

Revoke / amend Posted Workers Regulations?

Revoke / amend Agency Workers Regulations?

Amend Working Time Regulations?

Tweak TUPE?

Cap discrimination awards?

Greater flexibility to discriminate positively?

Reward – potential consequences?

Legal changes

relaxed regulation of executive variable pay (malus / clawback)? Not likely.

The “bankers’ bonus cap”? The FCA had sought to dis-apply the cap.

Article 4 of the Prospectus Directive – excludes the requirement to prepare a prospectus when offering shares to directors and employees where company head office is in the EU; or where share class on offer is the same as those already admitted to trade in the same regulated market.

Enterprise Management Incentives (EMI) Schemes – the tax relief currently classed as “state aid” and therefore limited to SMEs (250 employees or less). These schemes could be opened up more widely post-Brexit

Contractual issues

bonus, commission and incentive arrangements – who takes the risk?

discretion factors?

© Verditer Consulting CONFIDENTIAL

CIPD: Brexit and Reward

Samantha Gee

September 2016

30

© Verditer Consulting CONFIDENTIAL

About Verditer

We have everything you would expect from a good reward consultancy - deep technical knowledge,

great relationship skills, fresh insights, and a track record of success. What makes us different:

Our expertise we bring true breadth and depth of expertise

Our size our few select clients are critically important to us

Our clarity we communicate in a clear and straightforward way

Our feedback our clients give us exceptional feedback

31

© Verditer Consulting CONFIDENTIAL

Impact of Brexit?

32

Brexit hit a fragile global recovery:

•equity prices decline

•IMF & BCC cut growth forecasts

•£ hits 31 year low against $

•rising import costs

But some indicators were good in August:

•manufacturing exports up

•record rise in services

•housing market settled

•increased employment

Confusion & uncertainty

© Verditer Consulting CONFIDENTIAL

Impact on workforce?

There is still huge uncertainty around key strategic factors

affecting the workforce

33

Economy

Immigration

Employment

law

© Verditer Consulting CONFIDENTIAL

What could HR be facing?

34

REDUCED HIRING

• Employers increasing hires reduced from 40% to 36%, CIPD

• 54% won’t delay hiring decisions, Totaljobs

REDUCED INVESTMENT

• 21% to reduce investment in skills & equipment, CIPD

• UK productivity already behind other countries

SMALLER TALENT POOL

• Hiring and retaining EU migrants harder

• Potential loss of UK talent overseas

• 5% seen resignations in face of Brexit, BCC

CONCERNED EMPLOYEES

• 44% feel pessimistic about future, CIPD

• 72% not spoken to by employer about Brexit, Totaljobs

‘49% of employers are concerned about Brexit and total reward’

Willis Towers Watson

© Verditer Consulting CONFIDENTIAL

Implications for reward

1.Getting pay right

2.Responding to financial volatility

3.Broadening the deal

4.Addressing inequality

35

Photo: paris vega

© Verditer Consulting CONFIDENTIAL

Getting pay right

36

WE NEED PAY GROWTH

• Low unemployment at 4.9%, ONS

• Potential loss of EU & UK talent

• Perceived loss of value of pay, pensions & benefits

AFFORDABILITY IS AN ISSUE

• Auto-enrolment & National Living Wage costs

• Low UK productivity

• 2017 GDP growth forecasts down from 2.3% to 1% BCC

SUBDUED PAY GROWTH?

• Pay increase forecast reduced from 1.7% to 1.1% CIPD LMO

• NLW estimates for 2020 reduced to £8.70 Resolution Foundation

• Need to use pay/bonus to differentiate & create a unique employee deal

© Verditer Consulting CONFIDENTIAL

Responding to financial volatility

37

PENSIONS

More DB schemes may close due to

funding risk

Volatility affects value of DC funds and affordability

of retirement

PERFORMANCE PAY

Market and exchange rate volatility affect

bonus/LTIP/share plan metrics and

value

MOBILITY

Value of £ will affect value of

assignee packages

WELLBEING

Financial wellbeing

becomes more complex and

valuable, especially on retirement

PERCEPTIONS OF VALUE

Payouts from performance pay,

pensions and share plans carry more risk and so

valued less

© Verditer Consulting CONFIDENTIAL

Broadening the deal

38

L&D

•Skills development critical for economy

•Employees see increased need to upskill, CIPD

•BUT 41% of employers reducing investment, BCC

FINANCIAL WELLBEING

•More important in face of financial volatility

•Particularly around pension accumulation and retirement

MENTAL HEALTH

•44% employees feel pessimistic about future, CIPD

•Communication, manager skills and EAP programmes required

A unique and compelling employee deal is needed. Some benefits are more important then ever:

© Verditer Consulting CONFIDENTIAL

Addressing inequality

“The Brexit vote in the UK has demonstrated deep frustrations

at income inequality”

Forbes

“We need to find a way to respond to public concern about

executive pay”

PwC

39

“It’s time to focus on pay and opportunity for ordinary

workers as much as on pay at the top”

PwC

“the Prime Minister should stick to her guns” on NLW

Resolution Foundation

© Verditer Consulting CONFIDENTIAL

Addressing inequality

40

As Theresa May sets out her stall we’re expecting:

• binding votes on exec pay• employee reps on boards• pay ratio reporting• gender pay reporting• continued focus on

National Living Wage

Photo: Barnimages.com

© Verditer Consulting CONFIDENTIAL

Some practical actions

41

DEVELOP AGILE SALARY PLANS

•Based on different workforce scenarios

•Account for changing costs e.g. pensions, NLW

REFRESH YOUR REWARD STRATEGY

•Focus on achieving more with less as affordability and value decreases

•Develop employee skills as part of wider deal

•Focus on employee communication and wellbeing

REVIEW PAY & BONUS

•Differentiate through pay/bonus towards critical talent

•Review bonus metrics and mechanics

•Implement any regulatory changes e.g. bonus cap

TAKE ACTION ON INEQUALITY

•Calculate your gender pay gap and share plans to address it

•Calculate your executive pay gap and review decision-making process

•Make plans to fund NLW through increased skills and productivity

© Verditer Consulting CONFIDENTIAL

Some additional resources

• IES: Brexit Observatory

• CIPD: Brexit: how the CIPD can support you

• Deloitte: A guide to Brexit

• Willis Towers Watson: UK Referendum Hub

• Verditer Consulting Blogs:

• Brexit: Implications for Reward

• Does Brexit mean reward is broken?

• Theresa May: setting out her stall on executive pay

• Get ready for the annual pay review

42

© Verditer Consulting CONFIDENTIAL

Samantha Gee, Director

Verditer Consulting Limited

6 Doolittle Mill, Froghall Road

Ampthill, Bedfordshire, MK45 2ND

0203 7611 670, 07766 442279

samantha@verditer.co.uk

www.verditer.co.uk

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