The problem with remuneration committees is that the directors who sit on them are mostly insiders. They also sit on other boards and are drawn from a small pool of non-execs. Boards seldom take chances with appointments and there is very little diversity within boardrooms.I agree with this, and it strikes me that this is one of the key issues in the BIS short-termism review (which people are Googling like mad about incidentally, and winding up here - last minute submissions alert!). What's more I think there's evidence in research into group decision-making that supports the idea - Sunstein's work which I have plugged previously most obviously. I also think you probably need two representatives from employees/stakeholders/investors/whoever in order to make it easier for them to 'defect' - much harder if you are a lone voice against 'authority'.
This morning, Brendan Barber, who heads the TUC, called for employees to be elected to remuneration committees instead of the close-knit group of directors who currently populate them. I agree with Barber: I would like to see representatives from the workforce elected on to the remuneration committee. One or two employees would inject an important dose of realism into committee thinking on pay. They could also help back up maverick directors who fear to speak out in case they upset the rest.
Boards would fiercely resist a break-up in the cosy consensus that exists over pay. But a reform to the way remuneration committees operate would be a small step towards reducing the vast pay gap in Britain and injecting a little “fairness” into the corporate sector.
Monday, 10 January 2011
Open up remuneration committee membership
Interesting piece here from the High Pay Commission: