Three engagement recommendations

The following are recommendations on focus areas for engaging retailers on employee relations.

1: Investors should encourage retailers to integrate and report on employees as part of their business strategy, rather than merely as a cost

Retailers are slow in recognising employees as an asset rather than merely a cost. This particularly applies to lowskilled positions, such as shop floor staff and staff working in warehouses or logistics. Even companies that speak about their employees as assets often do not reflect this in their reporting, e.g. by providing evidence of how employees contribute to the growth of the business.

Retailers should be able to demonstrate that employee relations are taken seriously at board and senior management level. Where a retailer lacks this awareness at the most senior level, this is an indication to investors that the company may underestimate the impact that employees can have on the success of the business. Retailers should therefore be able to explain how their employee related strategy links to the overall business strategy and how employees contribute to the growth of the business.

2: Investors should encourage retailers to report on employee turnover, training and engagement, or explain why they don’t do so

Given the limited reporting in the sector, investors were encouraged that retailers typically measure much more than they disclose. This confirmed investors’ belief that there is a business case and need for quantitative data on employee relations. Over the course of the engagement, most companies that the investor group engaged with confirmed the relevance of the elements identified as most material by the research, in particular employee turnover, employee training, and employee engagement. There can be challenges and differences in how to measure and report on these, but it is clear that there is broad agreement, from both academic research and the engagement dialogues, that these are important KPIs to measure and manage. 

Employee absence was also accepted as one of the standard KPIs, but following the dialogues both investors and companies considered this to be of less relevance when compared to the other three metrics: while employee absence can indicate a dissatisfied and unengaged workforce, an increase in employee turnover is an even better indicator. Improvements in employee training and employee engagement tend to have a positive effect on other metrics; for example, improvements in training can lead to improvements in employee engagement, and in turn decrease absence and turnover rates.

Reporting in the retail sector remains low on all of these metrics. Less than half of the companies engaged reported their employee turnover, and although reporting on training and employee engagement has improved, there is still considerable room for progress. For example, while 17 companies referenced employee engagement in reporting, only 11 of these provided figures, and just nine provided evidence of an annual employee survey. Three of these were able to demonstrate credible evidence of a year-on-year increase in performance.

3: Investors should encourage retailers to take a proactive stance on emerging regulation and report on material employeerelated issues

Companies face a range of upcoming regulatory developments. From 2016, the EU Directive on disclosure of non-financial and diversity information will require EU companies with more than 500 employees to report on policies, outcomes and risks related to employee-related matters. Since 2013, listed UK companies have been required to publish a strategic report as part of their annual report, which must include reporting regarding employees where it is material. In view of this regulation, where retailers have limited reporting, investors could ask how they determined that employee-related information was not material.

On pay, the recent SEC rule will require public US companies to report their CEO to median employee pay ratio from 2017 and in the UK consultations are under way to introduce legislation in 2016, which will require large companies to report their gender pay gap.

Investors may ask retailers how they are preparing for these regulatory developments, and what information they consider material and plan to disclose.