Will My Employees Cut My Pay?

Most employees don’t have a say in how much their bosses get paid. When they’re shareholders, however, the balance of power shifts at least a little.

“Traditionally, employee-shareholders have rarely exercised their voting power,” Gretchen Morgenson wrote in last weekend’s New York Times. “But … stockholders of all stripes may be starting to assert themselves more.”

In particular, they’re starting to organize against huge executive-pay packages at companies such as Wal-Mart, Citigroup and Verizon. For instance, a $15-million paycheck for Vikram Pandit, chief executive of Citigroup, drew a 55% no-vote. And though such votes aren’t binding, they can certainly make a board think twice about whether to go forward with such king-size compensation.

“To the degree that employee-shareholders band together to have their say on the boss’s pay, they can be a formidable force,” Morgenson noted. “After years of acquiescence, it’s good to see shareholders starting to flex their muscles.”

Peter Drucker long saw this day coming. When workers own company stock, he wrote in 1986’s The Frontiers of Management, it can “prevent what employees resent the most: top people getting big increases in the very year in which a company slashes blue-collar and clerical payrolls.”

Illustration credit: Kahlil Bendib

Indeed, if Drucker would have been surprised about anything it’s that employees haven’t thrown their weight around even more. “Worker ownership of the means of production is not only a sound concept, it is also inevitable,” he wrote in a 1991 Harvard Business Review article. “Power follows property, says the old axiom. . . . And since property has shifted to the wage earners in all developed countries, power has to follow.”

In Post-Capitalist Society, Drucker explained that pension funds have effectively made millions of American workers into business owners. “If Socialism is defined, as Marx defined it, as ownership of the means of production by the employees,” he wrote, “then the United States has become the most ‘socialist’ country around.”

What do you think: Can employee owners rein in excessive executive compensation—or do they lack the power to make a real difference?