Key Issue: Labor Rights

ProxyDemocracy continues its coverage of social and environmental issues appearing on proxy ballots in 2010 with this installment on labor rights. More than 30 resolutions have been introduced this year on matters such as sweatshop labor and the disparity in pay between executives and lower-wage workers. The series was produced by the Sustainable Investments Institute.

Posted by Matthew Keenan at April 16, 2010 at 11:25 AM

ProxyDemocracy continues its coverage of social and environmental issues appearing on proxy ballots in 2010 with this installment on labor rights. More than 30 resolutions have been introduced this year on matters such as sweatshop labor and the disparity in pay between executives and lower-wage workers. The series was produced by the Sustainable Investments Institute, a Washington-based research center. SI2 co-founder Peter DeSimone wrote this report.

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This year’s lineup of labor rights proposals cover a range of issues, including:

  • Pay disparity and concerns about differences between executive pay and wages for line workers. There have been 22 proposals filed.
  • Supplier labor standards and the debate over eradicating sweatshops in global supply chains. At least four proposals have been made.

Pay disparity: The fractious public debate over disparity in pay between CEOs and entry-level employees has centered on the potential resentment it creates in the workplace, the risks associated with exorbitant short-term incentives, the negative effects of growing income and wealth disparities in the United States, and the possible disservice to shareholders in detracting from long-term shareholder value.

The recent financial crisis has heightened the standoff and focused scrutiny of pay practices at financial services firms, especially those receiving bailout money under the U.S. government’s Troubled Asset Relief Program.

Besides seeking remedies through financial reform legislation, investor activists are asking companies for reports summarizing a review of executive compensation policies and pay practices. The reports would compare the total pay packages, including benefits, of each company’s top executives and lowest-paid employees; an analysis of any changes in gaps in these pay bands; a determination if executive pay at each company is excessive; and a recommendation on whether changes or further monitoring is warranted, especially in light of any large disparities in pay or layoffs at each company.

Opponents say the activists’ contentions that CEO pay is out of line with share performance are flat wrong and contrary to the findings of a study commissioned by The Business Roundtable. They also note that pay-for-performance is now routine at the vast majority of publicly traded U.S. companies. Moreover, they warn, companies hamstrung by restrictions preventing them from paying market rates for executives risk losing key leaders and ground to competitors.

Supplier labor standards: Sparked by reports of abusive labor conditions from factory floors producing apparel and footwear in the 1990s, the anti-sweatshop movement in the United States has been in full swing ever since, although far fewer shareholder proposals have been filed on the subject in the last few years. Activists’ attention has expanded beyond the retail sector to many other industries, including toys and agricultural products, the target industries of this year’s shareholder proposals.

Squaring off in this debate are labor-rights advocates and free-trade supporters. The former argue that globalization is creating an unhealthy “race to the bottom,” as developing countries fiercely compete for scarce capital, contracts, investments and jobs. They also raise concerns that suppliers violating basic labor covenants are also likely to be cutting corners in other places, namely quality, which could further damage a company’s reputation.

Free traders say globalization has created jobs where none existed before, and sweatshops are a natural byproduct of the progression from developing country to industrialized nation. They argue that conditions will improve as economies grow and that until then market forces should prevail, as they provide the quickest path to prosperity.

The shareholder proponents are asking companies to adopt supplier codes of conduct containing internationally recognized labor standards, to monitor suppliers for compliance with these codes and to report on findings from these activities. They say that doing so will help companies mitigate risks to reputation related to engaging sweatshops and improve supply chain management.

Some critics question the effectiveness of voluntary corporate code compliance programs. Detractors argue that shareholders should not have to shoulder the costs of enforcing labor laws in the face of government neglect.

Other labor issues: At least eight resolutions have been filed on issues such as fair employment in Northern Ireland, the hiring of illegal aliens and the documentation of workers, and employee health care plans.

References

Pay Disparity

Supplier Labor Standards