The prime minister's recent pledge to tackle the bonus culture for executives is well-intentioned, but can only prove effective if companies are encouraged to put long term growth before short term profits. As long as short term profits remain a priority for businesses, they will continue to reward staff on this basis. I call on David Cameron's government to address this misalignment by encouraging businesses to implement longer term company strategies, and therefore bonus plans - with targets of three, five or even 10 years, which will not only increase employee loyalty but lead to further stability.
Having successfully turned around a number of failing business in the UK, I am fully aware that remuneration aligned to success is a vital element of employee engagement, but this must be managed appropriately. The current focus on the short term is driven by a deep-seated desire to focus business strategies on satisfying the city, and in particular to the pension fund managers and venture capitalists who work on obtaining instant results. This has led to businesses working towards a number of individual twelve month strategies, rather than one longer term plan. Whilst this approach leads to instant results, this impatient attitude does not lead to a lasting success in the future.
In particular, this focus on the short-term only benefits the financial sector. Over the past few decades, the UK has built itself as a global power-house for financial services, but the recent economic difficulties have proved this is not sustainable. We are experiencing increased competition from the BRIC countries. India and China will soon overtake us and ploughing all our resources into an unsustainable sector is unwise. Traditional industries such as manufacturing have been in rapid decline in the UK, but perhaps this is where the emphasis should lie. I took over the helm at Briggs Equipment - the UK's leading independent service provider and materials handling equipment supplier, five years ago and it has since been transformed from a loss making businesses into multi-million pound profit making organisation. This is due to a long term growth strategy and our commitment to investing in people and employee engagement.
However, had we required funding to grow the business we would have failed. Venture capitalists will never invest in a sector where growth is not immediate. This is a fool's economy. Whilst the manufacturing and industrial sectors will eventually reap rewards, it might take a bit longer. Fortunately, as Briggs is a private company, we had the freedom to focus on the long term strategy, with the faith that this would bring eventual success. This is not the case in Europe - Germany's manufacturing sector is booming and much of this is down to internal investment.
Another report out this week from manufacturers' organisation EEF found there is more negativity amongst its member companies regarding the UK economy. However, my experience leads to the opposite opinion and I believe this is where resources should be deployed. The UK provides fertile ground for the manufacturing sector and is free from much of the red tape and legislation that I have encountered running factories in other European countries. In addition, we have the skills in our workforce to manufacture products and equipment and ensure quality.
Whilst out-sourcing product manufacture to markets where labour is cheap may seem like a cost effective solution, the quality is inevitably affected and this therefore becomes a fool's economy. Instead of continuing to believe that the city is driving our economy, the government should be focusing on getting our manufacturing back on track. We are in an advantageous position in that the UK boasts the freedom of liberal social laws, strong employee engagement and limited union influence, and as such should be exploiting this to make manufacturing the backbone of our economy again.
I believe the government is in a position now where they can make changes, in order to help get our economy back on track, by moving the focus away from a volatile financial sector.
Firstly, pension funds should be invested in our UK economy and not overseas, as suggested by George Osborne in his Autumn statement. It's a case of chicken and egg; if funds invest in manufacturing and industry, these companies will have the resources to ensure long term success.
In addition, the government is currently in an ideal position to change the banking system, as they own a controlling stake in half of the big four. It needs to stop looking after the interests of the privileged few in the financial sector, and should legislate against the current bonus system. Banks should be encouraged to implement reward programmes linked to long term performance - perhaps incentivising staff with higher bonus packages, yet only effective after a longer period. My experience has shown that employee engagement is vital for success, and building loyalty is priceless.
The 'greed' of the city has been much talked about, but this excessive pay is in itself not necessarily a cause of unfairness, but an inevitable consequence of the current short-termism of our economy.