In the dark days of the pandemic lockdowns, there was hope that when the world returned to normal, we would build back better.
But the rising cost of living squeezed household budgets throughout 2022 and 2023, and for many workers, take-home pay failed to keep pace with inflation. Unsurprisingly, employees in many sectors have been fighting for better wages and working conditions over the past two years, leveraging their increased bargaining power in a tighter labour market.
In the first nine months of 2023, the US labour movement engaged in 56 major strikes, up 65% from the same period of 2022. In the UK, the industrial action of the past two years is on a scale not seen since the 1980s. Nearly four million working days were lost to strikes in the 12 months to May 2023, notwithstanding the decline in union membership over the past 40 years.
It is not just wage and benefit improvements that these strikers are seeking. They are also demanding quality of life improvements, with better staffing, more time off, and protections against forced overtime. Few sectors have been left unscathed, with public sector workers in the UK’s National Health Service involved in unprecedented stoppages, while in the US, strikes against the ‘Detroit Three’ by autoworkers, and disputes by Hollywood actors and scriptwriters, paralysed production for weeks.
What is the business case for treating workers fairly?
Ignoring worker requests can have a detrimental impact on company productivity and revenue. In critical parts of an economy, this can have serious knock-on effects on productivity in other areas. For example, the prolonged industrial dispute across the UK’s rail network has cost the economy over £1bn, with the hospitality sector thought to have been particularly hard hit
Higher workforce engagement can also be directly associated with reduced absenteeism and reduced staff turnover, as a result both of higher commitment to the organisation, effectiveness of resolving problems that may otherwise have led to quitting and also genuine improvements in employee health and wellbeing that reduce the need for sickness absence.
But the obvious advantage of avoiding prolonged strikes by keeping workers engaged is only one side of the coin. Studies indicate that constructive company-staff dialogue can be pivotal in transforming worker attitudes to new technologies from resistance to co-operation. This will be increasingly important through the climate and automation transitions we are seeing, as we transition to a lower carbon economy and the deployment of artificial intelligence alters the skillsets employers will require.
Enhancing value for investors
It’s important for investors to consider a variety of workforce factors in their human capital engagements, ranging from fair pay, living wages and decent work, to racial and gender equality.
On behalf of the institutional investors we represent at EOS at Federated Hermes, we expect companies to demonstrate that they have the right approach to human capital management, which can be linked to positive long-term shareholder value. When companies treat their employees with dignity and respect, there is a better understanding of staff potential and improved outcomes.
Other studies have concluded that for people with satisfactory salaries, some non-financial motivators can be more effective than extra cash. Though our in-house stewardship capabilities, we expect companies to demonstrate that they have the right approach to the total reward package, to help build long-term employee engagement across all sectors, job functions, and business contexts. We also expect human capital strategies to identify workforce transition risks and opportunities arising from job automation and a greater reliance on artificial intelligence, setting out any reskilling needs that may need to be met.
As we transition to a low-carbon economy, it will be equally important for companies to consider a just transition and demonstrate that they are upskilling and training workers to deliver against their climate commitments while evaluating impacts to local economies. Certain industries will no longer require certain types of roles so employees will need to be retrained into new roles being created.
The business case for companies to uphold strong workforce relations in order for them to be sustainable is, in our view, clear. Investors are increasingly focused on human capital management, expecting companies to prioritise fair pay, workforce well-being, and fair representation. As industries transition towards a low-carbon economy, its even more critical that companies strengthen workforce relations, improve employee engagement, and drive sustainable business growth.
