Tucked away in the Labour Manifesto are some interesting proposals to counter short-termism in the British economy.  There are three specific proposals on executive pay:

  • Improving the link between executive pay and performance by simplifying pay packages.
  • Employee representation on remuneration committees.
  • Fund managers to disclose how they vote on top pay.

The simplification of pay packages is intriguing – there is nothing to give a hint of what this will mean in practice.  We will have to wait and see, and hope that the starting point will at least  be a consultation process.

The introduction of employee representation on remuneration committees looks at first glance more specific.  The Coalition consulted on this in 2011 and did not take it forward (possibly because the consultation responses showed how complex and cumbersome this might be in terms of defining the role and responsibilities?).  The questions to be addressed include:

  • Would the representatives have to be elected?
  • Would the representatives be paid extra in the same way as the current non-executive director members?
  • What duties would the employee representatives have (e.g. confidentiality)?

To some extent, the approach to these issues will depend on whether the underlying objective is to try to influence the outcomes on executive pay or to give a platform for activist opposition to excessive executive pay.  One thing we can be sure of is that there will be individuals in both camps trying to steer the detail if this policy comes to be implemented.

There is also the issue of how to avoid unintended consequences.  Over the years the role and independence of remuneration committees has been enhanced by a series of changes to the corporate governance environment.  Might the presence of employee representatives on remuneration committees reverse that trend, with committees being presented with fully-worked up proposals to be simply rubber-stamped in order to minimise the employee representative’s role in policy formation?

One place where a new Labour Government might look to for inspiration is the world of pensions.  The requirement for pension scheme trustees to include employee representatives is now drafted in a flexible and non-prescriptive manner.  It has been in force many years and, after some initial teething problems, now generally works effectively.  However, it is not without its own problems as shown in Government-commissioned research in 2010.  Being a pension scheme trustee has many potential similarities to a role on a remuneration committee but the differences are very significant.  For example, as pointed out in the responses to the last Government consultation on this issue, how can the role of a member of a board committee be defined when that person is not also a director sitting on the board itself?

Inevitably the Labour Manifesto is short on detail, but then the point of the manifesto is to tell the voters what Labour will do.  At this stage, voters aren’t interested in how – that’s a joy we will only be able to relish.  We’ll be returning to this one, depending on the result of the election.  Or to put it another way, we’ll only find out the details of what Labour has up its sleeve to implement these ideas if voters think them noble and vote-worthy objectives (in conjunction with all their other noble and vote-worthy objectives, of course).