Shareholder returns that go into UK workers’ pensions are “very unequally allocated” and “disproportionately benefit a wealthy minority”, according to a report by the TUC, think tank Common Wealth and the High Pay Centre.
TUC general secretary Frances O’Grady claimed that “working people deserve a fair share of the wealth they create” and described a growing gap between profits for shareholders and investment in wages and pensions for average workers.
The report, Do dividends pay our pensions? calls for a number of actions to reform how returns are allocated to close the gap between the “working people who create the wealth” and share-owners, who it claims are too focused on short-term payouts.
These include including a seat on the board for workers, directly elected from the workers; making reporting requirements stronger for publicly listed companies and investment firms; stronger collective bargaining rights for workers and that directors’ duties are rewritten to remove the current requirement to prioritise the interests of shareholders over other stakeholders.
The report’s authors found that just 6% of UK listed shares are owned by UK workers. More than three-quarters of workers would back a legal obligation for businesses to give as much weight to the interests of staff as to shareholders.
They found that between 1981 and 1998, UK pension funds accounted for over a quarter of the total market value of UK listed shares. However, this declined to just under 13% before the financial crisis in 2008, then dropped sharply to its current position: around 2.4% for direct ownership, and 6% with indirect ownership included.
Foreign investors, meanwhile, own around 55% of UK shares, compared to just 5.6% in the mid-1970s.
This means that the richest 20% of UK households by income own 49% of pension wealth in the UK, according to their analysis.
Mat Lawrence, director of Common Wealth, said: “The economic story of the decade is clear: workers have suffered while asset-owners have surged.
“Ensuring working people share in the wealth they create is fundamental to turning ‘levelling up’ from rhetoric to reality. But critically, if companies reduce dividends and increase wages and investment, this mustn’t come at the expense of ordinary pensioners.
“With pension wealth inequality so high, the stock market is starkly disconnected from ordinary savers. The solution is a fair settlement at work and a social security system that provides security and dignity in retirement”.
Luke Hildyard, director of the High Pay Centre, said the link between the most successful businesses in the UK and “ordinary savers” was becoming weaker and weaker.
“Our research shows that a tiny and shrinking proportion of corporate Britain’s vast pay-outs to shareholders reaches ordinary savers, while workers are denied a voice in the running of the companies they help to succeed,” he said.
“We need economic reforms to make big business work for the benefit of everybody, not just a small number of wealthy executives and investors.”
The report also calls for businesses to be required to report on their spending on wages, research and development and training compared to dividends, share buybacks and executive pay over a rolling 10-year period.
It recommends that companies be required to report the average percentage pay rise per worker, tracked against the annual percentage rise in total shareholder returns, also over a rolling 10-year period.
It calls for greater rights for unions to tell workers the benefits of membership, and for the creation of new negotiation bodies across sectors, starting with hospitality and social care.
O’Grady added: “In the last two decades, wages have stagnated. Pension schemes have been curtailed with the loss of defined benefits. And the connection between UK pensions and UK shares and dividends has been severed.
“This isn’t how it should work. But we can restore fairness by reforming company law so that directors have duties beyond short-term profits for shareholders. And we can restore the power that workers need to gain their fair share with stronger bargaining rights.”
Theresa May called for the introduction of a requirement for workers on boards when she was prime minister, but the measures were never made compulsory.
In January 2019, the Financial Reporting Council launched its Corporate Governance code, however, which recommends companies use one or a combination of the following three methods to engage workforce representation: a director appointed from the workforce; a formal workforce advisory panel; or a designated non-executive director.
Pub chain Wetherspoon recently announced it would appoint four bar staff to its board of directors after a consultation with shareholders.