I blogged previously about the fact that the bit of the UK Corporate Governance Code that is supposed to nudge companies to take account of how their own employees are doing when setting directors' pay doesn't really work.
I also mentioned the Unite commentary around the Greencore AGM. Note here that we have a case of a company cutting some employees' pay, and provoking a strike in the process. Yet it also paid out significant incentive awards to its directors. (Before anyone claims they may have been contractually obliged to make such payments, it's worth stating that the language in most contracts is very vague on bonus and incentive schemes. In addition, why has any company drafted contracts that might oblige it to breach the spirit of the Code?).
For info, at Greencore's AGM, the vote against the remuneration policy was tiny, below even the average level of opposition (resolution 5 here). So presumably shareholders felt that everything that was ok with the reumeration policy at the company.
Regardless of whether one thinks this is the right outcome, let's just think about why it's unlikely that shareholders would ever hold a company accountable if it looked like it was being 'insensitive' to pay and conditions across the group.
Well for one they may simply not know. In my experience most institutional shareholders pay very little attention to what goes on within the workforce of companies in which they invest, unless something very dramatic has happened. I suspect most Greencore shareholders wouldn't even know about the industrial dispute, and therefore it wouldn't form part of their analysis of the remuneration policy even if they decided they wanted to take account of such issues.
They may also not be interested. Again I think this is probably the default approach of most institutions. I don't mean that as a critical judgment, rather I think that they probably consider being a bit 'insensitive' is a pretty trivial offence in remuneration terms. For example, even Lonmin, which saw numerous striking employees shot dead in a violent strike last year, only got a 29% vote against its remuneration report at the following AGM (the interim CEO received an extra payment). It does make you wonder how bad pay and conditions have to be in order for a defeat to be inflicted!
Thirdly, they may consider that in a tussle between management and labour they would rather side with the former. Again, it's amazing how much institutions will put up with and how loyal they will be to an investee company management. Add to this that asset managers are more likely to have a view of the world that sees labour primarily as a cost, quite aside from any personal politics, and I reckon it's pretty clear where sympathies will lie most of the time.
As such, I find it very difficult to believe that shareholders can really do the job expected of them in respect of this bit of the Code, and I think companies routinely only play lip service to it.
However, think about that Greencore example again. What if the remuneration committee had included two employee representatives? I think it is much more likely that there would have been pressure to take account of what was going in the workforce, and therefore to restrain rewards for executives. It might only be a weak restraining force, but surely more than we have at present. If we want that bit of the Code to mean anything, there has to be a feed in taking account of worforce issues, and employee representation is by far the easiest way of doing it.