Controlling Fat Cat Pay

20 June 2012

Statutory places for worker reps on remuneration committees would be a far more effective way to control executive pay, says IER.

On 20th June 2012, Vince Cable announced plans to force companies to have binding votes on executive pay every three years. Under Cable’s plans, companies would have to stick to their pay plans for the next three years or go back to the shareholder for another vote.

But quoting a report from the late Word Wedderburn of Charlton, IER reiterated his argument that worker representatives on remuneration committees would be a much more effective way to deal with the problem of ‘fat cat’ rewards.

Back in 2004, Bill Wedderburn argued in an IER booklet that shareholder activism, increased disclosure, interventions of institutional investors and the fashion for ‘non-executive directors’ offered little in the way of effective remedies.

He highlighted the fact that only a few miles through the Tunnel workers have rights to send representatives to general meetings of shareholders, to attend meetings of boards of directors and to have their works councils inquire into a takeover bidder’s plans for employment in the enterprise.

He went on to argue:

“Remuneration committees are a crucial part of corporate machinery in Britain, and workers’ representatives should have access to them as members with a full voice, as an expression of their proprietary interest in corporate governance”.

Highlighting the growing discrepancy between fat cat rewards and employees pay, Wedderburn went on to criticize the hypocrisy of the many companies who were winding down workers’ final pension schemes while pension rewards for executives continued to massively increase and rejected the idea that demands for talent in the global market were a good reason for the fat cat bonanza.

Carolyn Jones, Director of IER said:

“Excessive executive pay is now an issue pressing at the very heart of European capitalism. New mechanisms of control are needed. Three yearly votes on executive packages will not reach the problem. Cable would do better to reform company law. The insertion of worker representatives, preferably through trade union machinery, at appropriate points in corporate governance – starting with company remuneration committees – would go some way to resolving the problem of executive greed that is fuelling today’s inequality.