Management consultant Andy Sargent weighs up the pros and cons of Theresa May’s plan for employees in the boardroom
The debate about employees in the boardroom focuses largely on the idea that excessive pay awards to senior executives would be moderated.
Employers and unions in the UK have resisted the idea in the past. Both parties want to avoid conflicts of interest – capital has one set of values and labour another.
Additionally, companies guard commercial secrecy jealously while unions believe in free collective bargaining. Collective bargaining is undermined if employee representatives are tempted to explain to workers the company’s case for moderation of wage settlements.
There are questions about executive pay. So what are the pros and cons of Theresa May’s suggestion that there should be wider employee representation at board level?
- Boards and remuneration committees would need to think carefully about the justification for seemingly high awards. A much-needed debate about the relationship between pay and individual performance would be reopened.
- Incentive packages should take into account that if the business performs well simply because it’s in a growth industry, the CEO should not automatically pick up a hefty bonus.
- Wider representation might add value to executive pay and incentive policies.
- But boardrooms are not the place to settle this question. Board members have one fundamental duty – to represent the interests of shareholders, investors and owners.
- Employee representatives are accountable only to those whom they represent. They cannot be asked to keep secrets.
- The real need for better representation should focus on the decisions that affect employees’ wellbeing every day. Too often these consultations are not handled properly.
The prime minister has a point when she talks about employee representation in the boardroom, but…
- We already have too much employment law – and leaving the EU will not get rid of it.
- We shouldn’t mix up the need for more transparency with a solution that might possibly lead to bad law. Clever people could exploit loopholes.
- If CEOs and directors can deliver profit, dividends and investment, they will be able to rely on employee support – so long as pay policy is transparent and fair.
- Would unions support or oppose the plans? What conditions would they demand? And how could those nagging questions about conflicts of interest be settled?
The IoD could deliver a credible solution to the question of employee representatives on boards by suggesting something short of legislation.
Andy Sargent is a fellow of the IoD