Remuneration
Remuneration is defined in Clause 34 as: Basic Wages (Pay), Labour Share Dividends and Investor Share Dividends paid to Labour Shareholders. The full clause is reproduced below:
(a) Each provider of labour is subject to one or more contract (employment contract, contract for services or company membership) which controls the manner in which they are remunerated for their labour. These articles, including subsequent modifications, are part of any contract between the Company and those providing labour (directors, shareholders, employees, self-employed contractors). All members of the company shall be provided with a copy of these rules upon agreement or variation of a contract to supply labour.
(b) Labour may be recognised solely through company membership and remunerated solely through Labour Share dividends. A formal contract of employment will be issued if, in the view of the directors, ‘employee status’ tests used in employment tribunals have been, or are expected to be, satisfied (i.e. a person works regular hours, receives regular pay, has agreed holiday entitlements and is subject to regular supervision etc.).
(c) If the company issues contracts of employment to members of staff, the maximum ratio between the hourly rate of the highest and lowest paid member of staff shall be [3:1]. This ratio can only be amended by a Class Resolution in a meeting of Labour Shareholders. This ratio may not be amended by Ordinary Resolution.
(d) At the start of each accounting period, if the company has any employees, an amount equal to (Basic Wages x Current Inflation Rate) will be set aside for increases in Basic Wages. The application of any remuneration system to employees and self-employed contractors is at the discretion of the CEO or Executive Team (unless overridden by the procedure set out in clause 42). If the budget for increases in remuneration is not distributed within an accounting period, any unused part must be distributed as Investor Shares in proportion to Labour Shareholdings.
(e) An increase in the budget set in 34(d) can only be passed by Special Resolution.
(f) Directors’ pay and conditions follow the same principles as other company members and employees.
Of note amongst the above is Clause 34(c) - while all stakeholders can set the overall budget for remuneration, the only group with the authority to change the ratio of the highest to lowest paid is Labour Shareholders. To change the ratio, a Class Resolution passed by Labour Shareholders is required.
For the avoidance of doubt, the President, Board of Directors, Chief Executive and Executive Group are not empowered to widen the ratio between the highest and lowest paid member of staff - this power is reserved for Labour Shareholders in General Meeting. It cannot be overridden by Ordinary Resolution in General Meeting, nor by Special Resolution (unless a Special Resolution changes Clause 34 itself). The Governing Body, however, can propose such a change and participate in a vote if they are themselves Labour Shareholders.
This provision is based on the system that has successfully prevented executive wage inflation in the Mondragon Co-operative Corporation where the ratio between the rates of pay for the highest and lowest paid member of staff averages 5:1. At incorporation, the ratio is 3:1 and has been changed in some cases to 4.5:1 or 6:1 to retain and recruit good quality managers. In nearly 60 years (in hundreds of co-operatives), there have been only a few documented examples of General Meetings voting to widen the ratio beyond 6:1. As Mondragon Industrial Co-operatives are wholly owned by their workforces, the capacity of Labour Shareholders to prevent executive wage inflation is beyond reasonable doubt and can make a major contribution to ending pay inequality, and the social costs linked to them (see Wilkinson and Pickett's well-researched book, The Spirit Level[1].
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