My Lords, I listened carefully to the previous debate because there is a link. I concur with the comments made by my noble friend Lord Mitchell. He referred to investors investing in the company. I shall preface my remarks by saying that so do employees. For the most part, it is the whole of their livelihood, so it is just as important an investment as that made by shareholders. I submit that whether employees feel that they are committed and are working as part of an organisation that values their contribution is relevant to the success or failure of a company. There is also a perception within the company that there is fairness in the remuneration policies that apply.
I am sure that the Minister will not necessarily welcome this amendment, but I would love to be proved wrong. What would an employee representative bring to directors’ remuneration? What would their strategy and policy be? They would bring a different, fresh perspective and one that I would submit many companies need. My noble friend Lord Mitchell pointed out the huge rise in the ratio of top and bottom pay in companies over the past 20 years or so. In some cases, one might argue that there was a justification if they were rewarding success, but in many cases we are seeing failure rewarded just as much as success. In my experience of pay negotiations over a number of years, there was nothing that contributed more to a feeling of resentment than situations where the workers were told that the company could afford only X% for them but, when it came to the pay of directors, they somehow deserved double or treble. The argument is often made that they bring these special skills or talents: I am just as sceptical about this as my noble friend Lord Mitchell.
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I cannot help reflecting on the recent example of the pay of the BBC director- general, where the new one got something like half of what the previous director-general was paid. Are we saying that that individual brings half the talent, half the commitment and half the ability? I do not think so. The general view of the noble Lord’s appointment is that he will bring a new and valuable approach, so the idea that somehow the only thing that motivates directors is their remuneration is not necessarily the case.
We believe that the requirement to consult and employ a representative would be a positive part of determining directors’ remuneration. As I said previously, it would bring fresh perspective; it would make the remuneration committee—in establishing its policy—realise the impact it is likely to have within the company as a whole. All the experience where employees are involved in these circumstances shows that there is better performance within the companies concerned.
Will Hutton’s review of fair pay in the public sector shows clear academic evidence that large wage disparities within companies harm productivity and company performance. For example, one study of 4,735 companies between 1991 and 2000 found that within-firm pay inequality is significantly associated with lower firm performance. A second study that used Standard & Poor’s executive compensation data, covering around 1,500 companies a year, found that firm productivity is negatively correlated to pay disparity of top executives and lower-level employees.
My amendment represents a modest proposal. There are those who argue that there should be a representative on the remuneration committee of the board, so this is a modest step that would make a positive and constructive contribution not only to directors’ pay but to the performance of the company as a whole. Fairness would be evident and there would be more transparency. I look forward to hearing the Minister’s comments and I beg to move.