International Solidarity

European unions fight high executive pays

Excessive executive pay is now an issue pressing at the very heart of European capitalism. Business legitimacy is being eroded as Europe's citizens are shocked by further examples of this new creed of greed. Such a loss of business legitimacy will undermine successful companies, and could create major problems for their workforces.

Company boards that award themselves large pay rises without any clear link to performance are creating a crisis of confidence among customers, employees and shareholders. To make matters worse boards often ensure that they will reap substantial rewards even if their contract is terminated. This can mean that they are being rewarded for failure. In these circumstances disillusionment and discontent is fuelled when employees see their co-workers laid off at the same time as board members line their pockets.

The key question raised by this situation for institutional investors - who in many cases are ultimately workers' pension funds - is: are these excessive executive pay arrangements in the interests of shareholders, and likely to lead to wealth creation.

Too often in recent years it has seemed that executives regard companies as vehicles for self-enrichment rather than for the creation of wealth for all stakeholders. In this sense a company's approach to executive pay is a key indicator of how focused the management is on its primary function. To get it wrong is a major failing of corporate governance.

We are currently seeing some response from institutional investors but too often the response is weak. This is due to a disconnection between the ultimate owners - for example the pension funds - and the fund managers they employ. As long as fund managers are not required to publicly disclose how they vote it is impossible to tell which ones are genuinely trying to address failings in corporate governance.

It is also time to revisit how remuneration is decided. Supervisory boards and company remuneration committees are filled by executives. We now know that letting executives decide each other's pay often leads to vastly excessive pay, unchallenging targets and huge rewards even when executives do a poor job.

We therefore urge our Governments and the European commission, where appropriate, to:

Ensure that Supervisory boards discuss and decide on the structure and amount of remuneration (all parts) that are fixed and variable such as retirement schemes, etc. These decisions can only be prepared in relevant subcommittees when employees` representatives are involved.

Guarantee maximum transparency, structure and amount of remuneration of each and every member of an executive board of a company, which has to be published on an individual basis in the company's annual business report.

Members of Supervisory councils must have the option to establish a limitation on stock options, which sometimes are part of the remuneration.

Urge the European Commission to establish in the guideline under discussion a legal framework for the aforementioned rules.

Encourage, on a national basis, these rules being implemented by law or by consent between employers' and employees' representatives through a Corporate Governance Codex, which should include also the possibility of sanctions.

Ensure that in those countries, where there is no employee representation on supervisory boards of big companies, that there is more diversity in remuneration committees, including considering statutory employee representation.

Introduce mandatory binding votes on executive remuneration, and require institutional investors to publicly disclose their voting records.

Michael Sommer

President DGB

Lodewijk de Waal

President FNV

Brendan Barber

General Secretary TUC

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© 2001 Community & Public Sector Union - State Public Services Federation (CPSU-SPSF) - National Office

http://www.cpsu-spsf.asn.au/campaigns/higher_ed/20030613_145.html
Last Modified: 15 Nov 2005