Think-tank worker pay proposals could cause ‘significant conflict of interest’

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This article was first published by LexisNexis on 11 October 2019

The cross-party think-tank the Social Market Foundation (SMF) has called for corporate governance laws to be tightened to increase pressure on bosses to help workers increase their pay over time. This call was set out in the think-tank’s second research paper on the subject of pay progression for low-paid workers, which covers the role of corporate decision-making. The authors of the report outline numerous policy recommendations, including new duties for directors and the tailoring of pay expectations for different sectors. Martin Pratt, partner at Ince, contends that, if implemented, the SMF’s proposals could create a conflict of interest for directors between their duties to company shareholders and employees.

The SMF’s policy recommendations are as follows:

  • a new requirement in section 172 of the Companies Act 2006 (CA 2006) requiring directors to ensure workers share in the proceeds of growth in a company
  • the government should look to clarify the validity of a ‘Heightened Review’ by the Courts which would assess a Board’s decision-making process in determining whether directors have breached CA 2006, s 172
  • raising awareness of current CA 2006, s 172 law among employee shareowners
  • tailoring pay expectations to each sector
  • transparency requirements on pay progression and training
  • encouraging shareholder activism
  • accreditation schemes, which could be used to highlight employers providing training opportunities equally across their workforce, including to low-paid groups

Pratt contends that employment law, as it currently stands, ‘is based on the inequality of arms between labour, on one hand, and capital’, and that ‘it recognises that the interests of shareholders may not be the same as employees, so seeks to protect workers from the worst effects of that conflict’. He therefore thinks that the SMF’s proposals are radical insofar as they ‘would give two duties to directors—to their shareholders and to their employees’. This in turn ‘could cause a significant conflict of interest’.

This article was written by Tom Inchley (Editor – Current Awareness, LexisNexis).
Source: SMF News Release—New law to push bosses to give workers a raise
Martin Pratt

Martin Pratt Partner

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