Customers of Britain’s 7,000 biggest companies would be given the right to vote on the pay of top executives under plans for a clampdown on boardroom pay being considered by Labour.
A report commissioned by Rebecca Long-Bailey, the shadow business secretary, and John McDonnell, the shadow chancellor, calls for an annual binding vote on executive packages to include all stakeholders – including employees and consumers.
Other suggestions include scrapping all forms of share options so that executives are paid only in cash, a ban on golden handshakes and punitive fines for directors of companies that persistently fail to pay the minimum wage. The report also proposes that all companies in Britain with more than 250 staff would have to reveal the names of employees paid more than £150,000 a year.
Coming in the wake of a study by the International Labour Organisation earlier this week showing that wage growth in Britain had been the weakest of nine advanced countries over the past decade, the report says its 20 recommendations are necessary to “curb undeserved executive pay and also create mechanisms for better distribution of income”.
Labour, which is seeking to show it is ready to fight a snap election if Theresa May’s government collapses over Brexit, gave a warm welcome to the report commissioned from a team led by Prem Sikka, professor of accountancy and finance at Sheffield University.
Party sources stressed it would be wrong to assume all the suggestions would make it into the party’s next manifesto but Long-Bailey and McDonnell are well disposed towards five key reforms proposed by Sikka:
That executive remuneration contracts in large companies be made publicly available
That executive remuneration be in cash, because rewards in share options, shares and perks invited abuses.
That pay differentials between executives and employees analysed by gender and ethnicity be published
Company law be amended to give all stakeholders the right to propose a cap on executive pay and bonus package
The remuneration of each executive at large companies be subject to annual binding vote by a range of stakeholders.
Stakeholders includes shareholders, long-term customers and employees.
Labour believes an attempt to curb boardroom pay is justified by the lack of restraint shown by company boards and the failure of voluntary codes to have any impact on executive remuneration. Sikka’s proposed reforms would apply to the 7,000-plus companies in the UK that have 250 or more employees, accounting for more than 10 million workers.
Long-Bailey said: “Whilst many of our businesses work hard to ensure that rewards and prosperity are fairly shared across their workforce, there continues to exist a pernicious corporate culture in some firms that many across Britain would view as immoral.
“It cannot be right that in just three working days, the UK’s top bosses will have made more money than the typical full-time worker will earn in the entire year. Labour will look closely at the recommendations of this report as we seek to build on our existing policy of tackling pay inequality.”
Labour believes it can tap into rising public anger fanned by the weakest decade for employee pay since the 19th century. The report notes that a typical chief executive of a FTSE 100 company earned around 20 times the wages of the average British worker in the 1980s, but this had risen to 70 times by the early 2000s and to 150 times by the mid 2010s.
The report suggests employees and other stakeholders should have a say in setting boardroom pay in order to “exert pressure for better distribution of income and improved quality of service for consumers”.
The report added it would be simple to identify the customers of utility companies but that loyalty schemes made it possible to take account of customers’ views of other big firms as well.
“Thus, consumers in many industries can be identified with certainty and must be empowered to vote on executive pay. This would help to check profiteering, mis-selling of products, poor services and abuses of customers.”
Employees facing wage freezes and stakeholders experiencing poor products, poor service and high prices were unlikely to back big rises for executives and this would act as a powerful check on “exorbitant” pay for directors, the report noted.
“If company directors think that they deserve more then they must seek approval from all stakeholders, which is unlikely to be granted unless there is a corresponding improvement in benefits for them all.
McDonnell said: “Coming on the heels of the International Labour Organisation’s report on Monday, the scale of bonuses and the opaque way they are paid should be a source of shame to those running our economy. The government have shown no interest in tackling the causes of inequality in our society and we are grateful to Prof Sikka and his team for shining a light on the problem.”
