Toward Fair Gainsharing and a Quality Workplace for Employees: How a Reconceived Compensation Committee Might Help Make Corporations More Responsible Employers and Restore Faith in American Capitalism

34 Pages Posted: 12 Jun 2020 Last revised: 16 Jun 2020

See all articles by Leo Strine

Leo Strine

University of Pennsylvania Law School; Wachtell Lipton Rosen & Katz

Kirby Smith

Independent

Date Written: June 4, 2020

Abstract

In the three decades after World War II, workers and stockholders shared equitably in the nation’s growing wealth. But, during the last several decades, this fair gainsharing has diminished as the power of the stock market, in the form of institutional investors, has grown, and the comparative voice and leverage of workers has declined. As a result of these and other factors, a much greater share of the gains from increased corporate profitability and productivity has gone to stockholders and top management, on the one hand, and much less to employees, on the other. Contributing to this divide has been a push to tie top management pay to total stockholder return and to create incentives for management to deliver returns to stockholders, even if that requires decreasing the share that the workers primarily responsible for corporate success get. The resulting economic insecurity and inequality have caused demands for serious change in corporate governance to give greater weight to the interests of workers. In this Essay, we focus on one practical way to move toward that worthy end: reconceiving the compensation committee. That is, a reconceived compensation committee would focus on the company’s entire workforce, not just senior management, and have the responsibility for overseeing management’s implementation of an effective system to compensate workers fairly, ensuring they receive a fair share when corporate productivity and profitability increases, and analyzing what allocation of compensation within the company’s workforce will provide the most motivation to encourage corporate success. To accomplish this, compensation committees would be expected to understand the nation’s, the industry’s, and the company’s traditional gainsharing practices among workers, stockholders, and top management and develop and implement a corporate strategy to ensure that gainsharing is equitable. By doing so, compensation committees will also be able to more rationally set top executive compensation and establish metrics for top management and key personnel involved in gatekeeping functions that are tied to good EESG practices and not just to stock price. And the reconceived compensation committee should also be the committee charged with compliance and EESG responsibilities in the areas most important to workers, including not just worker pay and benefits, but also safety, racial and gender equality, sexual harassment and inclusion, and training and promotion policies. Not only that, the reconceived compensation committee should monitor company practices in its supply chain to ensure that the company’s adopted policies regarding fair treatment of workers extend to those workers who work for company contractors. By this evolutionary means that builds on the existing American corporate governance system, important strides can be taken toward making our capitalist system work better for the people most critical to its success: workers.

Keywords: Corporate Governance, Social Responsibility, ESG, Employee Benefits, Compensation Committee, labor, unions, gainsharing, sustainability, inequality, institutional investors, corporations, institutional investors, corporate social responsibility, collective bargaining

JEL Classification: G18, G23, G32, G34, G35, K22, P12, P16

Suggested Citation

Strine, Leo and Smith, Kirby, Toward Fair Gainsharing and a Quality Workplace for Employees: How a Reconceived Compensation Committee Might Help Make Corporations More Responsible Employers and Restore Faith in American Capitalism (June 4, 2020). U of Penn, Inst for Law & Econ Research Paper No. 20-37 Harvard John M. Olin Discussion Paper No. 1035, Available at SSRN: https://ssrn.com/abstract=3619273 or http://dx.doi.org/10.2139/ssrn.3619273

Leo Strine (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Wachtell Lipton Rosen & Katz ( email )

51 W 52nd St
New York, NY 10019
United States
212-403-1178 (Phone)

Kirby Smith

Independent ( email )

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