Putting staff representatives on boards does not reduce CEO pay

23 Apr 2020 By Siobhan Palmer

Research into European companies suggests this intervention has no impact on executive remuneration

Having staff representatives on company boards is often cited as a way of curbing excessive executive pay, but a study from Vlerick Business School in Belgium has found the practice has no impact. 

In some European countries, employee representation on boards is common practice, with 78 per cent of German firms and 72 per cent of French companies including an employee. But the research, which analysed the pay levels, habits and incentives of 899 major European businesses, including 159 UK firms, found no relationship between having a staff representative on the board and CEO pay levels.

In Germany, where employee representation on boards was extremely high, CEO pay was also noted to be among the highest in Europe. 

Professor Xavier Baeten, who co-authored the study, said the findings ran counter to the belief that “an employee representative could be expected to keep an extra eye on pay ratios”, adding: “I would not push it so far as to say employee representatives on the board do not care much about executive remuneration, but the least we can say is that such an intervention in corporate governance does not seem to be very effective.”

The research found UK CEOs received the highest pay of any European country, with their median annual remuneration in 2018 reaching nearly €3.2m. Swiss and German executives pocketed the second and third-largest rewards, at €3.11m and €3.1m respectively. 

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