Article:

Is purpose the key to paying less?

25 March 2022

Allan Feinberg, Managing Director, Remuneration & Reward Services |
Catherine Bell, Principal, Sustainability |

How purpose helps resource organisations attract, retain and motivate workforces

Driven by the impact COVID-19 has had on our work and our lives, resource companies are experiencing significant turnover as employees rethink what is important to them and actively pursue something better.

“As we think more about how we work and why we want to work, purpose has become more important,” says Allan Feinberg, Managing Director, Remuneration and Reward for BDO.

Although pay remains the primary way to retain employees, more executives are willing to make less money if they think they are doing work that matters in the world.

“In the wake of this ‘great resignation’, pay is still working hard as an attraction, retention and motivation tool, but in the background, we are seeing the power of purpose rising as a powerful weapon in the retention toolkit.”

Why focusing on ESG matters to your people

Although it remains a relatively under-employed benefit, companies that make Environmental, Social and Governance (ESG) a driving purpose at the grassroots level often pay less than their counterparts, especially at executive levels.

This an emerging trend that we are tracking, and BDO has partnered with several resources companies to help them build ESG strategies that are making a difference beyond merely compliance. Those that are doing this right have several things in common that are worth examining.

Firstly, they are not ignoring pay issues. They are focusing on market pay, but they also have a strong purpose and great culture to attract and retain people.

Secondly, ESG initiatives are driving the ‘purpose’ agenda, and these are well planned, co-created, and focus on delivering sustainable long-term value and, most importantly, are inseparable from the business plans. Leadership teams that have been most successful have made ‘purpose’ a compelling business case. It is not something that they do ‘on top’ of everything else, they do it ‘as part’ of the daily work.

In addition, the purpose agenda describes where a company wants to be and has a destination goal of what that looks like. The ideal future state is defined in behavioural terms.

This means that everyone is clear how it delivers competitive advantage, and they track it using key metrics that are then cascaded into every team and every job. In this way, everyone is clear on the direction and goals, with desired behaviours described in detail.

“There's always a verb,” Feinberg says. “It's not managers are nice, it's every manager delivers on a target.”

This takes time to implement, but leaders at all levels take the time to help their teams develop relevant soft skills, such as collaboration, environmental and cultural awareness. They update employees on progress and align goals to daily work and celebrate wins.

A purpose-led culture creates trust

None of this is short term. A purpose-led culture that creates both trust and discretionary effort takes a few years to build and requires leadership tenacity and continuity.

But given the growing stakeholder focus on ESG and decarbonisation, the ongoing scramble to retain talent and the burgeoning need to attract and grow new skills to support modernisation and intelligent mining are compelling arguments for a purpose-led approach to leading people well and ensuring sustained profitable growth.

"If you're serious about purpose, consider using the ESG agenda to drive it, and if you're going to do it, do it properly, make it core to your business strategy, the way you work, and reward and recognise good people,” Feinberg says.

Is purpose the key to paying less?

How does putting purpose at the core of what you do translate into paying less and having less turnover?

“We helped three different West Australian mining companies incorporate their purpose into everything they do, and as a result, they are paying about 15% less than their competitors,” Feinberg said, noting that those who have a really entrenched purpose don't have to work as hard as competitors.

One organisation was losing people, and they implemented great communication around purpose. Their purpose was that they wanted to stay and grow as a business and grow people's skills in a boom bust environment. They promised employees there would be jobs and ongoing growth, because they would survive through developing skills and introducing new technology.

By providing employees with a clear career path, employees felt more invested and embraced the company story.

McKinsey research found that 70% of employees said that their sense of purpose is defined by their work, so leaders in an organisation play an important role in helping their employees find their purpose.

“Our Remsmart data shows mining companies are paying unprecedented salaries and offering a lot of interesting reward initiatives, and yet they remain terrified of losing people. If we go back to purpose and drive with that, track and measure that, and make it part of the business, the process builds trust with employees as well as investors.”

Over the last two years:

  • Executive salaries have increased by an average of 5-8%;
  • Overall pay for technical skills has increased by 8-12% over the past 18 months;
  • Work has become more flexible, with even time shifts increasing in popularity; and
  • Retention and Capability payments are growing in popularity.

Some resource companies have further embraced the social side of ESG values by incentivising improvements in mental health metrics or dealing with issues like social or gender bias.

On a management level it becomes a routine agenda item with routine trackers on it, and every single employee has a performance requirement with built in social or environmental financial reward opportunities.

For a complementary consultation on how to build an aligned ESG and remuneration strategy, please contact your local BDO adviser.