Future UK Labour government will give workers a say on the boss's pay

A future UK Labour government would force companies to parachute a worker representative on to their remuneration committee to help tackle rising executive pay.

The party, widely tipped to be in power after May's general election, would also change takeover rules to restrict voting to those on the shareholder register at the time a bid is made and would strengthen the public interest test that needs to passed to allow a takeover. This follows the contentious acquisition of Cadbury, the British chocolatier, by Kraft Foods, the US group, in 2009 and last year's failed bid by Pfizer, the US drugs group, for UK peer AstraZeneca.

The Liberal Democrats, a potential coalition partner, have also called for mandatory staff representation on remuneration committees, as well as the right for employees who collectively own 5 per cent of a company to have board representation.

The idea of worker representation on pay committees may prove most contentious to companies and institutional investors.

Roger Barker, director of corporate governance at the Institute of Directors, said: "We do support the idea that employees should have more of an input into executive pay policies. We think that could have an impact on the rate of pay growth.

"But there is a danger that [executive pay] will start to get looked at in isolation from everything else the board is looking at. Our view is that this is not helpful for corporate governance."

George Dallas, policy director at the International Corporate Governance Network, said that while he recognised the potential value of "stakeholder input" in setting executive pay, he would be "cautious" about the idea of having a committee member focusing exclusively on remuneration who was divorced from the broader board-level debate.

Mr Barker said the Lib Dems' proposal for employee board representation was an "idea worth exploring". "Generally speaking, when a shareholder has a significant stake, there are good grounds for having board representation. A hedge fund might try to get boardroom representation with that kind of stake."

Another industry figure, who asked not to be named, feared worker representatives might not have the appropriate skills to sit on a board, while they would also represent a single constituency, when directors' fiduciary responsibility is to the company as a whole.

Mr Barker said there was "a lot of merit" in Labour's plan to limit those able to vote on a takeover proposal. "Why should someone who has just bought the shares and held them for a short period of time have any say in a takeover situation?" he asked.

However, he said the IoD would not support a strengthening of the public interest test, fearing takeovers could become more politicised.

In contrast, Mr Dallas said he thought a stiffer takeover test was a "reasonable consideration" but opposed introducing restrictions on those allowed to vote.

Mr Baker also gave his backing to a Labour proposal to force institutional investors to publicly disclose how they vote on executive pay.

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