date: 20 January 2012
embargo: 00.01hrs Monday 23 January 2012
As ministers talk tough on top pay as bank bonus season gets underway, the TUC is today (Monday) setting out five reasons why the government should introduce worker representation onto remuneration committees as a way of tackling the widening pay gap between top directors and the rest of the workforce.
The TUC believes that employee reps would break the closed shop on remuneration committees and offer a healthy dose of economic reality when discussing pay and bonuses.
The ratio of top executive pay to average employee pay has increased from 47:1 in 2000 to 102:1 in 2011. Unless action is taken pay inequality will get worse, says the TUC.
The five reasons as to why the TUC believes the government should act are:
Excessive rewards at the top are damaging for business and wider society
Big bonuses are defended as being necessary rewards for risk-taking and success. But the link between top pay and performance is highly tenuous and the financial crash showed that the excessive risk-taking associated with high bonus levels can have a disastrous impact on the economy.
Large pay gaps within companies are bad for the business concerned as research shows they contribute to employee disengagement and lower productivity. If the government wants to address the widening gap between directors and the rest of the workforce then giving workers a voice is a good way of addressing this.
Giving shareholders greater power will not make any difference
The Prime Minister has suggested making shareholder votes on remuneration reports binding. But in the eight years since shareholders have had an advisory vote on remuneration reports, only 18 reports have been defeated.
Shareholders often see publicly voting against remuneration reports as too confrontational, preferring instead to work behind the scenes. Making votes binding could actually make shareholders less likely to vote against reports.
Worker representation on remuneration committees makes a difference
A recent study showed that among the 600 largest European companies, the presence of board level worker representation is correlated with lower executive pay.
Worker representation is already working successfully throughout Europe
The UK is behind the curve on worker representation at boardroom level. Various systems already operate in Austria, Denmark, Finland, France, Germany, Norway and Sweden.
Worker representation can be implemented easily and quickly
There are already precedents for the involvement of employees and their representatives in company activity, for example through non board members sitting on company health and safety and CSR committees, and the rights of employees and their representatives to have information at key stages of a merger or takeover.
TUC General Secretary Brendan Barber said: 'The three main political parties are at long last catching up with the TUC's call to take action to curb excessive pay in the boardroom.
'With ordinary workers suffering the sharpest fall in living standards in a generation it's completely unacceptable for those at the top to continue awarding themselves huge and unjustified pay rewards that bear little correlation to performance.
'Introducing worker representation would bring a much-needed dose of economic reality to company pay decisions. It already operates successfully across much of Europe and it's about time the UK caught up.
'We've had years of tough rhetoric from politicians on excessive pay and still no decisive action. Introducing worker representation on remuneration committees into the UK would be an excellent start.'
NOTES TO EDITORS:
- A comparison of board-level representation across Europe can be found at www.eurofound.europa.eu/eiro/1998/09/study/tn9809201s.htm
- The report highlighting the correlation between executive pay and worker representation in Europe - Board Level Employee Representation, Executive Remuneration and Firm Performance in Large European Companies, Sigurt Vitols, March 2010 - is available from the TUC press office.
- Will Hutton's Review of Fair Pay in the Public Sector cites academic evidence that shows high wage disparities within companies harm productivity and company performance. For example, a study by the Centre for Globalisation Research of 4,735 companies between 1991 and 2000 found that within-firm pay inequality is significantly associated with lower firm performance.
- All TUC press releases can be found at www.tuc.org.uk
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Issued: 23 January, 2012