‘The Carrot and the Stick: The Issue of Directors’ Remuneration and the Scope for Employee Participation, a Comparative Analysis

Abstract

The UK Government has grappled with the issue of excessive directors' remuneration for many years with limited success; corporate governance initiatives, such as advisory shareholder votes on DRRs, have tended to be rarely used and hindered by economic and social obstacles. In the light of the BIS proposal to increase the impact of the shareholder vote on DRRs from advisory to binding, as set out in the Enterprise and Regulatory Reform Bill 2012, which has since received Royal Assent and become the Enterprise and Regulatory Reform Act 2013; this paper seeks to analyse the feasibility of the said reforms. The paper firstly finds numerous vital economic and social factors at play that drive directors' remuneration up. This is followed by a finding consistent with many academics that, despite a recent spate in dissenting votes by shareholders on remuneration packages, shareholders lack the requisite information, knowledge, and motivation to use a binding vote to meaningfully reform remuneration trends. The paper also finds that due to the close relationship that employees often share with their respective companies codetermination, akin to that which is famously used in Germany, has merit within the remuneration committees of UK PLCs.