The scourge of underpayment has once again hit the headlines, with the Department for Business, Energy and Industrial Strategy (BEIS) publishing its annual round-up of companies that have paid below minimum wage over the past 12 months.

In its latest list, BEIS has named and shamed 260 firms for failing to properly remunerate a record 16,000 workers, with the wage shortfall hitting a total £1.7 million. As a result of their failure to meet minimum-wage requirements, those firms have been fined a collective £1.3m – which demonstrates that avoiding their compliance obligations has not been of any long-term, financial benefit to the companies’ leaders.

The list has reflected badly on brands that depend upon public support and affection to survive, such as the Scottish football clubs Motherwell, Greenock Morton and Falkirk – who have been forced to refund a total £116,697 to 92 workers. Retail brands Primark and Sports Direct have also fallen foul of the government’s pay investigators.

Low Pay Commission chairman Bryan Sanderson said: “[Our] conversations with employers suggest that the risk of being named is encouraging businesses to focus on compliance. Further, it is good to see that HMRC continues to target large employers who have underpaid a large number of workers, as well as cases involving only a few workers, where workers are at risk of the most serious exploitation. It is imperative that the government keeps up the pressure on all employers who commit breaches of minimum wage law.”

Despite HMRC’s diligence, underpayment is still endemic in the fabric of UK businesses. What does this say about the relevant companies’ leaders?

The Institute of Leadership & Management's CEO Phil James explains: “A sustainable value proposition means that everyone in the supply chain has to be appropriately rewarded for their input. And if any part of that supply chain is exploited, taken advantage of or not appropriately or adequately rewarded, then the chain breaks down. In these examples of brands such as Primark and Sports Direct, employees are not being adequately rewarded for their contribution. So their value is not being recognised.

“Of course, it’s not sustainable because what kind of service are these customer-facing members of staff going to provide when they’re feeling unfairly rewarded? Their loyalty will be low to non-existent. The moment they get another opportunity they’ll leave, and then the company is left with the costs of recruiting people to replace them.”

James says: “You could certainly try to build a business model on the idea that people aren’t going to stay for very long, and that your workforce is therefore going to be transient and replaceable. But in the long run, a company with that outlook will hardly be an appealing first port of call for jobseekers with loyalty and value to offer. A business model that relies upon a short-term view that fails to acknowledge the importance of customer-facing staff or the unsustainability of inadequate rewards is highly unlikely to last.”

He adds: “In cases where particular goods are being sold at extraordinarily low prices, some consumers will also wonder how the economies are being achieved. If they get a sense that the key to those savings is that the staff are being poorly paid, that may prompt them to go elsewhere. It’s also important to remember that there could be policy-related knock-on effects from these pay practices: in cases where low pay is the norm, schemes such as Universal Credit are likely to make up the difference. So in many ways, this issue needs to be seen in the round, with the application of joined-up thinking.”

For further thoughts on ethical leadership, check out these learning resources from the Institute

Image of Primark branch courtesy of Angelina Dimitrova, via Shutterstock