Worker representation on remuneration committees moves one step nearer
Vince Cable has today launched a Discussion Paper on executive pay, which includes a question on employee representation on remuneration committees. Not quite a firm proposal, but the first time I am aware of that the possibility of worker representation on remuneration committees has been put forward in an official Government document.
The TUC has been campaigning for worker representation on remuneration committees for over 15 years. There have been times in the past when we have been derided for putting forward a proposal that appeared to go so strongly against the grain of the status quo. It shows that ideas that are far outside the mainstream political discussion can inch slowly inwards and gain real traction over time.
There are many arguments in favour of worker representation on remuneration committees. There is now agreement across the political spectrum that the gap between directors’ rewards and those of ordinary workers has stretched too far. Giving workers a voice on remuneration committees is a direct response to this growing gap and a practical way to make a difference. This is not just as assertion: academic research among the largest 600 European companies has found that presence of board level employee representation is correlated with lower CEO pay and a lower probability of stock option plans.
Remuneration committees are required under the Corporate Governance Combined Code to take into account pay and conditions across the company as a whole, but there is little evidence that this principle is adhered to at present. Bringing workers into remuneration committees would at a stroke boost awareness among remuneration committee members of employee pay rises, pay levels and morale. Worker representation would bring an overdue sense of perspective onto remuneration committees, which has to date been sadly lacking.
As to the practical issues, there are useful precedents from Continental Europe that show how issues such as confidentiality can be addressed.
If worker representation on remuneration committees does become a reality, the TUC will organise training for worker representatives to ensure that they are fully prepared for their important role.