Pay and power: democratising the workplace

12th November, 2012 10:02 am

Britain needs an economic strategy capable of tacking unjustified inequalities, empowering citizens to shape the economic decisions that affect them, and ensuring that no single group can dominate economic and political decision-making.  This applies to the major decisions taken by governments and business at the national level, but also to decisions taken at the level of the workplace. Too many of us find ourselves shut out of decision-making processes that affect our experience of work, with companies often serving a narrow set of interests. Not only can this be disempowering but it may also be one explanation for some of the endemic challenges that characterise many (but by no means all) British workplaces, including low pay at the bottom, excessive rewards at the top, sluggish productivity growth, weak innovation and a culture of short-termism.

Legislation has a vital role in correcting some of these weaknesses, particularly in providing basic protections for workers, like a minimum wage and protection from discrimination. But moving beyond these minimums requires the greater involvement of employees in what happens inside companies. In many British firms, employees are encouraged to get involved in day-to-day decisions about how their own job is structured or how their team works – with benefits for productivity and innovation. More involved forms of workplace democracy give employees a formal role in decisions about company strategy as well as operational issues, often through formalised forums like joint union-management negotiations or works councils. Broad-based schemes that give employees a financial stake in their company, such as profit-sharing or share ownership, are particularly effective when combined with active involvement in decision-making and when ownership is collective.

The value of all these approaches is that they recognise that democratic relationships have a place in the workplace, just as they do in other walks of life. Without them, the workplace feels like an anomaly given Britain’s strong democratic traditions. Democratic engagement in the workplace can also have practical benefits for employees and companies. European-style works councils, still unpopular in Britain, are associated with higher wages for women and low-paid workers than in comparable firms, with no negative impact on company performance. Many European countries allow employees to join company boards and studies have found that managers generally perceive this to have a positive impact on the company. Financial participation schemes (profit-sharing and share ownership) that are available to all employees tend to be associated with stronger productivity gains and more constructive relationships between staff and managers.

Compared to most advanced economies, the UK is starting from a fairly low base when it comes to spreading democratic workplace practices, and shifting this will require slow and incremental change. Ultimately, this will require movement on two fronts. First, we need to rethink the British approach to corporate governance, which gives a formal governance role only to shareholders. Shareholdings are too fragmented and share ownership too diverse in most companies for shareholders to be able to properly oversee how companies are run. The legitimate role of employee representatives and works councils in company decision-making in many European countries stems from the formal role afforded to employees, alongside other interest groups like consumers and local communities, in corporate governance. A requirement to take decisions in the long-term interest of the company rather than the sole interests of shareholders or directors (or even workers) means that diverse interests have to be balanced and comprises struck.

But the impact of top-down reforms to corporate governance will be limited if employees are not organised and empowered to seize opportunities to get involved in decision-making. Where this works, it is supported by vibrant and representative unions – which we simply don’t have in Britain outside a handful of industries. It may be that alternative organisations for employee representation can be formulated, like the ‘community unionism’ heralded in the US and practiced by London Citizens, although such organisations tend to lack the resources of major unions. Embedding a genuine process of democratisation in many workplaces is likely to require reform from within the union movement alongside shifts in public policy.

Kayte Lawton is Senior Research Fellow at IPPR

This piece forms part of Jon Cruddas’s Guest Edit of LabourList


  • News Labour: ‘Rattled’ Cameron can’t claim centre ground

    Labour: ‘Rattled’ Cameron can’t claim centre ground

    David Cameron cannot claim to be in the centre ground of British politics after today’s speech – and his attacks on Jeremy Corbyn show he is “rattled” by the election of the new Labour leader. That is the message from the Labour Party today. While Cameron hoped that his speech to Tory conference would be seen as a claim to the political centre – with focus on poverty, social mobility and housing – Shadow minister Jon Ashworth has hit back, […]

    Read more →
  • Comment A credibility deficit: why Labour’s former winners deserved to lose

    A credibility deficit: why Labour’s former winners deserved to lose

    The recent report from Jon Cruddas confirmed that Labour lost the election because it appeared too anti-austerity, too anti-aspiration and too far in favour of wealth redistribution. The selection of Jeremy Corbyn therefore came as a shock to so many of the political elite, particularly those connected to Tony Blair’s three consecutive election victories. But with conference season drawing to a close, and Corbyn’s shadow cabinet settling into their new roles, for Labour’s modernisers the time begins for self-reflection and […]

    Read more →
  • Comment Featured What we learned from the Tory Conference

    What we learned from the Tory Conference

    David Cameron’s speech finishes up the Conservative Party’s conference in Manchester – so what did we learn this week? 1. The leadership contest is well underway The jostling to replace David Cameron has begun in earnest, with George Osborne, Theresa May and Boris Johnson retaining their places as the frontrunners. Osborne is laying down his marker as a safe pair of hands – only an economic crisis over the coming years is likely to take that away from him. May was […]

    Read more →
  • Featured News Labour hit back at Cameron’s “record of failure” on housing

    Labour hit back at Cameron’s “record of failure” on housing

    Labour’s Shadow Housing minister John Healey has this morning hit out at the Tories’ record on housing and home ownership, as David Cameron prepares to make the topic the centrepiece of his Tory conference speech today. Cameron will pledge to build 200,000 ‘starter homes’ over the course of this parliament, encouraging people into home ownership rather than renting. However, Cameron’s definition of ‘starter homes’ was criticised by housing charity Shelter in August, when they published research showing that an income […]

    Read more →
  • Comment Featured 5 reasons Theresa May is wrong about “mass migration”

    5 reasons Theresa May is wrong about “mass migration”

    Theresa May yesterday took to the podium at Tory party conference and channelled her inner Enoch Powell. In a bid to prove her leadership credentials she made a virulently anti-immigration speech, but it was riddled with inaccuracies. She somewhat confusingly tore apart her own record on immigration as Home Secretary and warned that “mass migration” makes social cohesion impossible. The subtext of this: if you’ve got problems, blame migrants. Here’s why she is so sorely wrong. 1. Migrants aren’t responsible […]

    Read more →
Share with your friends