Pay and power: democratising the workplace

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