Staff need to sit on remuneration committees, says TUC
The government needs to do more than simply make investors' voting decisions binding if directors' pay is to be set at more realistic levels in future, says the TUC today. In its recent submission to the government's consultation on shareholder voting rights, the TUC says that allowing workers to sit on companies' pay committees “would introduce a touch of the real world to the process of setting top pay”.
Making votes binding - as proposed in last week's Queen's Speech - may make boardrooms less likely to opt for mega pay packages that bear little relation to investor returns or to the salaries of the rest of the company's workforce, says the submission. But in the nine years since shareholders were granted advisory pay votes only 21 out of thousands of pay reports have been voted down, says the TUC. Unless the rules are changed, making votes binding will have little impact. Raising the bar so that every pay report must attract at least 75% support would help give added “bite to shareholder protests”.
Relying on shareholders alone in the battle against unrealistic, out of touch executive pay is not going to be enough on its own, says the TUC submission. Investors tend to be more concerned with their own dividend payouts and therefore with company performance in that particular year, whereas staff will have a much greater interest - and stake - in how the company develops in the long term.
That's why the presence of staff on remuneration committees could proving crucial to reining in executive pay in the UK, says the submission. Across Europe workers have long had a seat on pay boards and as a result director pay tends to be set at more realistic levels.
The TUC submission says that the government's failure to grasp the valuable contribution that workers could bring to remuneration committees is a key weakness in ministers' plans to reform executive pay.
It says that ministers seem convinced that if workers want to get more involved in the pay setting process they should use existing information and consultation regulations - which apply to firms with more than 50 staff. But, says the submission, few workplaces have information and consultation agreements in place, and even those that do have no rights to discuss workforce, let alone boardroom pay.
A final word
“The government is resting all its hopes on shareholders curbing executive pay, but despite all the investor unhappiness being voiced around the city of late, company directors have still been able to pocket huge pay and bonus bonanzas.
“Director pay in the UK is proving both austerity and recession-proof. Meanwhile the pay of workers in the private sector is failing to keep pace with inflation and public sector workers are in the middle of a lengthy pay freeze.
“The presence of staff on pay boards would help remind senior executives of the financial hardship being experienced by ordinary households across the land and inject pay boards with a much-needed and timely dose of reality.” - TUC General Secretary Brendan Barber.
Want to know more?
The TUC submission is available at www.tuc.org.uk/economy/tuc-20979-f0.cfm.
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