Friday, 13 March 2009

Workers in the boardroom

There's an interesting headline in the Torygraph today - 'Unions could be given say in boardroom pay, says Lord Myners'. This is their take on Myners' speech to the NAPF investment conference yesterday. The speech isn't on HMT website yet as far as I can see, so this exceprt is taken from the newspaper report:
He said remuneration committees needed to be more open to a wide range of views. "Should they, for instance, consider formally seeking views from investors, employees and their representatives?"

It's an interesting suggestion, and one (not surprisingly) I would definitely support. What's more I think in the current climate it may be hard to argue against. Just a year ago if you had suggested something like this, the inevitable reply would be that remuneration was an issue for boards and shareholders. But, as the stats I posted yesterday demonstrate, shareholders (which can basically be taken to be fund managers) haven't used their voting rights to rein in pay effectively. I'm sceptical that fund managers are ever likely to do so, because they are culturally desensitised to high pay. If there is any hope in making shareholder oversight work, it must lie in getting pension funds to take more responsibility, and delegate less to fund managers. (Incidentally there's an academic called Paul Cox who has done some interesting work on this which should be coming out this year. He thinks many fund managers would rather get shot of ownership responsibilities if they could).

But back on the pay question if, like me, you're sceptical of the current ability of shareholders to provide a restraining influence, and you think that reform is needed, then something along these lines of what Myners suggets is worth exploring. Remuneration committees are made up of people who are directors of other companies who are therefore a) also desensitised to high pay and b) used to the system as it is (including reliance on remuneration consultants). Employee involvement in remuneration committees might mean that companies finally pay attention to the widely ignored bit in the Combined Code that says they should be sensitive to pay and conditions elsewhere in the company. Do you think a TU rep would have agreed to Fred Goodwin's unreduced early pension?

Presumably this kind of proposal will be picked up under David Walker's review of governance. I hope the investor trade bodies don't lobby against it. And if they do, let's hope proponents ask the question about at remuneration at the banks in the run-up to the crisis - where were the shareholders?

Finally, I have to say that am I quite upbeat about the type of discussion that has occured this week. I think Myners and Hector Sants are absolutely correct to turn the spotlight on the role of investors. Funnily enough some of the ideas now being talked about are things we argued for at the TUC a few years back (I'm not claiming originality here, other organisations also made similar suggestions) but felt quite radical because of the conservatism prevalent at the time. Let's hope we have the chance to get some of these things through now.

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