When corporate directors meet to approve lavish CEO pay packages, nothing can spoil the mood quite like having a rank-and-file worker at the table.
“They get embarrassed,” one worker representative on the board of a major European company told the London-based Centre for Labour and Social Studies.
“Knowing full well that I represent people who’ve had a 1 percent rise in pay for the last five years,” it’s hard for them to award a massive CEO bonus, the worker explained.
Prominent progressive leaders in both the United Kingdom and the United States want to crank up this embarrassment factor by requiring large corporations in their countries to include worker representatives on their boards.
“Decisions taken in boardrooms affect people’s pay, their jobs, and their pensions,” UK Labour Party leader Jeremy Corbyn said as he announced a plan recently to allow workers to select up to 30 percent of board members. “Workers deserve a real say in those decisions.”
On the other side of the Atlantic, U.S. Senator Elizabeth Warren has introduced a similar proposal. Her Accountable Capitalism Act would require corporations with annual revenue of more than $1 billion to allow employees to pick at least 40 percent of board members.
The proposals are popular in both countries. A 2016 poll by the UK Trades Union Congress found that 59 percent of Brits support worker reps on boards of large corporations, with only 10 percent opposed. In a recent poll of likely U.S. voters, 52 percent were supportive and only 23 percent were opposed.
Another commonality: the United Kingdom and the United States have the largest gaps between CEO and worker pay in the developed world. A Bloomberg analysis of CEO pay in 2015 and 2016 at firms of similar market value found that the average pay for U.S. CEOs was $14.3 million. Their UK counterparts came in second, with $7.9 million. Bloomberg found the ratio between CEO pay at these companies and the national average for all workers to be 265 to 1 in the United States and 201 to 1 in the UK.
In Germany, which Senator Warren has pointed to as a “successful” model of worker representation on boards, average CEO pay levels, while hardly stingy, were less than half the U.S. average, at $6.2 million. The CEO-worker pay ratio was also far lower, at 136 to 1.
It’s no mere coincidence that Germany has one of the most highly developed systems of worker participation in corporate decision-making, with the right to hold half of the seats on a supervisory board. In at least a dozen European countries, workers have the right to representation in their company’s top administrative and management bodies.
The benefits of considering workers’ views in corporate decision-making go beyond moderating CEO pay levels. Workers would also be a voice for investing resources in ways that support good, sustainable jobs instead of fixating on short-term profits for executives and shareholders. The current “shareholder primacy model,” writes Lenore Palladino of the Roosevelt Institute, “has driven the deep-rooted economic inequality that we live with in America today.”
Both Corbyn and Warren’s “workers on boards” proposals are part of larger plans to shift the balance of power within large corporations. Corbyn aims to require British companies with 250 or more UK-based employees to transfer 10 percent of shares into a worker-controlled “inclusive ownership fund.” Every year, employees would receive up to £500 (US$659) in dividends, with the remaining revenue flowing into public investment projects.
Warren’s plan would shift power not only by giving workers boardroom seats, but also by obligating those corporate boards to consider the interests of all stakeholders. To get a good performance review, CEOs would have to deliver benefits for workers, customers, and the communities in which they operate — instead of merely maximizing shareholder value. Corporations that repeatedly break labor, environmental, or other laws could have their charters revoked.
Corbyn and Warren insist that giving workers a louder voice would be good for business. Warren points out that as recently as the 1980s, corporations plowed more than half of their profits into building up their business. But over the last decade, as unions have declined, large U.S. corporations have handed 93 percent of earnings over to shareholders, shortchanging long-term investment in ways that reduce their competitiveness.
Corporations “should welcome the expertise and understanding that workers will bring to the company board,” Corbyn told the crowd at his party convention.
Not surprisingly, though, big business is not buying this line. In fact, corporate opposition in the UK is so stiff that Prime Minister Theresa May backed off a similar proposal to require worker representation on boards after campaigning in support of it in 2016.
In the United States, the response to Warren’s proposal has been more muted, but this may change if she becomes a serious contender for presidential power. As Prime Minister May flounders in her Brexit negotiations, British corporate lobby groups have real reason to fear an early election that could put Corbyn in power. In the United States, 2020 still seems a long way away.