Are we looking at compensation upside down?

By February 14, 2019News

By Kevin Thomas, Executive Director

Whenever shareholders talk about income inequality, the discussion tends to focus on efforts to limit executive compensation. In part this is practical, because thanks to ‘say on pay’ votes shareholders have the ability to influence executive pay. In part it is because investors also tend to stay out of ‘operational’ concerns beyond the board and executive level. And in part it is a natural reaction to reports of egregious pay scales and practices at some companies.

But capping executive pay on its own is a limited response to a structural problem. Limiting a few peoples’ income at the top end does not guarantee that the dollars saved will be channelled towards measures that improve economic outcomes for the rest of the workforce. Experience certainly suggests otherwise.

More attention needs to be paid to ensuring corporations recognize and reward the value provided by rest of the workforce.

SHARE’s new publication, Aligning Compensation: An investor brief on fair pay and income inequality, looks at ways to elevate the place of the workforce within listed corporations so that boards, executives and investors begin to value decent work.

As the report indicates, there’s a lot more we can do, as shareholders, than just looking at executive pay on its own.

When voting proxies for our clients, SHARE analyzes executive compensation compared to revenues and other corporate indicators, and uses pay ratio data (where available) or other measures of median worker income as a check against excessive disparities. We vote consistently for shareholder proposals that address rights at work including freedom of association and collective bargaining, and for proposals that ask firms to evaluate and address gender and racial pay gaps.

SHARE also approaches companies within sectors that are highly dependent on a motivated workforce and/or known to have low pay or other incentive-related issues. We ask companies to measure and disclose appropriate workforce-related metrics that help to value the contribution that workers make to the success of the company, such as the Workforce Disclosure Initiative. We ask boards of directors to consider the pay grades and/or salary ranges of all classifications of company employees when setting target amounts for CEO compensation, and to describe in the company’s proxy statements how it complies with the requested policy. We also ask management to address specific practices that contribute to inequality and precarious work such as poor shift scheduling practices and/or gender pay gaps.

Lastly, on behalf of shareholders, we advocate publicly and in meetings with government officials and regulators for reforms that protect and empower workers, address income inequality and gender pay gaps, and protect workers’ retirement savings.

SHARE’s impact-oriented shareholder engagement, proxy voting and policy advocacy programs are focused on achieving changes in corporate policy and practice that not only mitigate risks at the company level, but also contribute to building a sustainable, inclusive and productive economy upon which long-term investment incomes depend.

Rampant inequality and short-sighted workforce management have no part in that vision.