If you work hard for a company, help it succeed and make a profit, then surely the owners should share a little of those profits with you and other employees. Some of the best companies already do. Indeed, the best companies also want their staff involved in decision-making at the highest level, using their knowledge and expertise to help plot company strategy and keep senior management on their toes.

Poor productivity and rising inequality

Britain has a productivity and a fairness problem. Despite numerous initiatives, we are behind our main competitors in terms of productivity, whilst at the same time inequality continues to grow.

Changing the way companies work, how they take key decisions, and who is involved in those decisions is one essential for sorting these problems out.

We lag behind the rest of the G7 and most of the G20 in how productive our economy is.

Indeed, for 2010-2014, annual average labour productivity was lower in Britain than in any other G20 or G7 country.

And whilst executive pay has shot up in recent years the incomes of the rest of the workforce has struggled to keep pace even with historically low inflation.

Giving power to staff

Part of the solution involves sharing a little more of the power and profits of big business with staff at all levels.

Companies like John Lewis share some of the profits they make with all their staff, giving the most junior as well as the most senior staff direct incentives to work even harder, think imaginatively and go the extra mile.

Employees also get to help choose the Board, again giving staff direct responsibility for selecting those at the very top whose decisions they’ll have to follow.

Ensuring the concerns of staff get heard at the top table, is particularly important as staff depend on a stable business for their livelihood. Absent owners or disengaged shareholders may have other priorities.

Shared capitalism

In countries like France and Germany this ‘shared capitalism’ is a stand out feature of their business practice. Companies like Deutsche Bank have staff on their German Board who play an important and positive role, while in France firms of 50 or more employees benefit from 5% of profits being shared with all staff, except recent arrivals.

French Profit-Sharing Law

Indeed, French governments of all political persuasions, right and left, have a long history of encouraging profit sharing amongst its companies. Laws on profit-sharing have existed for more than 50 years requiring a mandatory profit sharing schemes to be negotiated with their employees.

Companies in France can choose to distribute rewards either as a flat rate to employees, in proportion to wages, in proportion to the hours worked in the previous year – or a scheme based on the combination of those principles.

Arguably, the prevalence of profits sharing schemes makes an important contribution to much higher levels of productivity than in the UK. Between 2010 and 2014 France had levels of productivity per hour almost double that of the UK. We work on average longer hours than the French but they produce more per worker than we do.

 

Employees on Boards in EU countries

Employees on Boards are the norm in many other successful countries. In Denmark, France, Finland, Norway, Sweden for example, as well as Germany, at least one director is elected by the Board.

In Norway – favoured by some for being outside of the EU – once a business has 30 employees one director has to be a worker.

In Sweden, another key UK ally, once a company has 25 employees around a third of directors have to be workers in the business.

In France, private companies with 1,000 or more employees, or 5,000 or more if they are worldwide, have to have at least one or two staff on the Board, while a third of all Board members on state-owned companies are elected by the staff.

In Germany, a third of the supervising Board in companies with 500 or more employees are staff but this rises to half in companies with more than 2,000 employees.

We have for a long time, quietly been happy to endorse workers on boards – albeit so long as they are overseas businesses. EDF, France’s leading nuclear energy company and in the process of being handed the keys to Hinckley Point has a board in which one-third of its members are elected by its workers. As a French company, EDF also has a profit sharing scheme. Deutsche Bahn who also run through their subsidiaries much of our rail network have 6 directors elected by their staff.

Even though both are key players in British markets, particularly in England, English workers do not get to vote for Board members – it’s just German and French staff.

Employee Directors in the UK

There are a number of companies operating too in tough markets in the UK who have demonstrated that Employee Directors work. John Lewis is one, but FTSE 100 company, First Group are another.

Mick Barker is the Employee Director of First Group. He has been a railway man for 39 years and is employed as a train driver for First Great Western serving on the Board and various other key bodies. Indeed, First Group encourage their operating companies across the UK and North America to elect Employee Directors to their Boards so that, in their own words, “the views and opinions of staff are represented at the highest level”.

Both Germany and France have lower levels of inequality and levels of productivity growth the envy of many UK economists. Perhaps it’s time Britain followed their example and reformed how companies operate?

High pay and reform of Remuneration Committees

In the UK the response to the concern about high levels of executive pay, with often little relationship to business performance, and while workers’ wages have been falling, has seen debate about broadening the membership of the Remuneration Committees of big companies. The Department for Business, Innovation and Skills considered in 2011 reforming the Remuneration Committees of Boards, but nothing happened.

Incentive to co-operate

Analysis from the House of Commons Library suggests that corporate household names could be allocating to their staff an extra £500 – £1200 a year once profits have been declared. Not huge sums of money, but helping to reward better the collective hard work required for any business to succeed. It does not add to business costs nor undermine pay differentials between skilled and unskilled workers, or between founder and recent employees, but does offer an incentive to all to co-operate together to support business success and achieve higher returns for both staff and owners alike.

As the IPPR has noted, if every private sector company in the UK with 500 or more employees had a profit sharing scheme, over 8million people in 3,000 British firms could benefit from hundreds of pounds a year extra.

Summary

• Company law needs to change to reflect modern Britain.
• Employees’ crucial stake in the success of their employer needs recognition in law.
• Strong businesses, better rewards for staff, higher productivity and a less unequal country.
• This Bill is a step towards those ambitions and I commend it to the House.

Supporters

1. Chris Evans
2. Meg Hillier
3. Steve Reed
4. Louise Ellman
5. Adrian Bailey
6. Rachel Maskell
7. Stephen Twigg
8. Mark Hendrick
9. Stephen Doughty
10. Kate Osamor
11. John Woodcock