Companies need to share more wealth with workers

For two generations, workers’ wages have stagnated. During this period, powerful institutional investors have tied executive pay to stock performance and created a corporate-governance system solely focused on delivering for stockholders.

The bulk of the rewards for improved corporate performance shifted to stockholders and top management, at the expense of other company stakeholders.

The result has been soaring inequality, increased economic insecurity and a growing anxiety that the US capitalist system is stacked against working people.

Business leaders have even acknowledged that an economic system that doesn’t work for everyone is unsustainable, most prominently in the Business Roundtable’s statement last August that the purpose of a corporation shouldn’t be just to serve shareholders, but workers as well.

We would go further: Revise the mandate of board compensation committees to make them responsible for overseeing a more equitable pay distribution for the entire company workforce. This is made more urgent by the Covid-19 pandemic which makes clear that the people doing the risky work essential to our economy make much less than the national average. Basic fairness requires us to right these inequities, especially because taxpayers have once again bailed out big business.

Boards must make more sensible decisions about senior executive compensation, situating it within the overall context of the company’s workforce. Likewise, a focus on workers will help directors make more enlightened decisions about balancing shareholder returns with equitable compensation for workers and the maintenance of prudent reserves to help the company better withstand future adversity.

This approach requires directors and senior executives to set baselines for more equitable pay along with metrics to track the workforce’s share of gains in productivity and profitability. That policy should recognise that stockholders deserve a solid, long-term return but also that employees have a deep incentive to sustain corporate profitability and deserve fair wages and encouragement for working hard to achieve that objective.

Although it would be unproductive for a board committee to enmesh itself too deeply in the details of worker pay, a solid grasp of essentials is necessary. For example, the committee could ask company management and advisers to identify – both company wide and along major business lines – data such as the mean and median pay and benefits package of each quartile of employees, with corresponding data about their function, educational level, skill set and business relevance.

The committee should also collect information on whether there is a race and gender-pay disparity. Importantly, it must also consider the company’s use of contract labour and whether those workers are fairly treated.

But the committee shouldn’t stop at issues of pay: it must approve company policies to ensure that employees have safe working conditions, reliable and family-friendly schedules, are treated with respect and dignity, and have a welcoming and inclusive workplace that is free from discrimination and harassment.

By doing this, the well-being of the workers, who are critical to the company’s success, can become a central consideration in corporate decision-making.

Perhaps most of all, if corporate America is serious about capitalism working for the many, the reconceived compensation committee can ensure that workers receive their fair share of the value they create.

BLOOMBERG

• Leo E. Strine Jr is the former chief justice of the Supreme Court of Delaware. He now serves as adjunct professor at Harvard and Penn law schools.

Read the latest on the Covid-19 situation in Singapore and beyond on our dedicated site here.

Get The Straits Times app and receive breaking news alerts and more. Download from the Apple App Store or Google Play Store now.

Source: Read Full Article