126.96.36.199 Fairer Sharing of Wealth
A fairer sharing of wealth could be achieved by rebalancing negotiations so that workers are present during the initial distribution
As noted above (188.8.131.52) the distribution of wealth in a company is largely decided in board meetings in which workers are often not represented. This has led to gross economic inequality (184.108.40.206) and considerable resentment. A less distorted distribution would be seen as fairer and therefore more acceptable to the workforce. This would probably lead to better industrial relations and less staff turnover.
A business’s performance determines the amount of wealth it creates. It cannot control the amount which the government takes in tax, but it can control how the rest of the wealth is distributed – which would be more meaningful if it were conducted as a single negotiation:
● An inclusive negotiation would take account of the interests of the employees. Transparency would be increased if the employees were represented on the boards of companies, as with worker-participation in Germany for example:
“Employee representatives have a right to seats on the supervisory board of larger companies – one-third in companies with 500 to 2,000 employees, half in companies with more than 2,000.”
● Workers would perform better if they benefit when the business is doing well – and that would also appear fairer, since shareholders and senior management often receive bonuses. All employees can be incentivised to improve a business’s performance, for example by profit-sharing, by employee shareholdings or by agreements which link pay to productivity. A report, Profit-sharing in OECD countries, found evidence of improved business performance:
“A considerable body of evidence suggests that the introduction of profit-sharing is associated with a rise in the level of productivity in the firm. The estimated size of the gain varies considerably from case to case, but is often substantial.”
● Employees would be more likely to accept low wage settlements, rather than be forced to accept job cuts, if they were made fully aware of the competitive situation. For example, when chief executive Michael O’Leary explained his airline’s financial problems to the pilots’ union, Ryanair pilots agree to 20% pay cut in attempt to limit job losses. That was an exceptional intervention, but it seems likely that involvement of the workforce on a regular basis could lead to wage settlements that were acceptable to all parties.
A balanced negotiation would apply an appropriate weighting to the needs of employees, directors, shareholders and the future development of the business. It would have to take account of the realities of the labour market and financial markets, but it should balance them against the requirements of all the stakeholders in the business to achieve a fairer sharing of wealth.
The role of shareholders
Shareholders and financial markets would take more of an interest in the medium-to-long-term health of businesses, and in exercising governance over the board of directors, if they moved money around less often. As noted previously, a financial transaction tax would incentivise them to retain their shares for longer periods (3.5.5). Shareholders who are actively involved in running a company can vote down excessive pay awards for directors and senior management.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3563a.htm.