Public hasn’t an automatic right to know pay levels due to EU data protection law

The IFA’s former general secretary Pat Smith and president Eddie Downey find themselves as household names for all the wrong reasons.

Public hasn’t an automatic right to know pay levels due to EU data protection law

Despite the largesse they received in the past, one would not want to be in their shoes just right now.

They have acquired totemic status. But we have been here before.

We had the gilded bankers and then, two years ago, it was the turn of top executives in the high-profile charities Rehab and the CRC.

The Rehab directors faced detailed questioning at the Public Accounts Committee where TDs Shane Ross and Mary Lou McDonald, in particular, made hay.

However, interesting issues have been raised.

EU data protection law ensures that executives and other employees benefit from a high degree of confidentiality when it comes to aspects of their remuneration.

At the same time, the public, including ordinary members of organisations, are increasingly seeking full disclosure.

The law as it stands tends to favour employees over the employer.

But the question is whether sufficient account is being taken of the strong power that long-serving executives in organisations wield.

For starters, they are not subject to stock exchange disclosure requirements.

It was interesting to observe just how reluctant were many high-profile representative bodies when it came to divulging details of their full-time executives’ compensation.

The teaching unions, Impact, Siptu and Congress all provided details of headline figures.

But up to last Friday, many others had stayed silent.

The Irish Medical Organisation provided the most dramatic example of an organisation entering into a one-sided agreement with its now departed chief executive over a large remuneration.

In its 2012 annual report, the IMO said that “openness and transparency will be key qualities of the IMO going forward.”

But the dice, it seems, is typically loaded in favour of those in charge of the day-to-day running of an organisation.

According to employment lawyer Adrian Twomey much can depend on the legal structure of the body involved.

“A member of a club does not necessarily have the right to know about the financial affairs of the club, even if he or she had the right to use the facilities,” says Mr Twomey.

“There is no necessary right to find out about the salaries of the staff” though a shareholder will have all the rights of shareholders, including rights to information, he adds.

Normally, boards will give their legal adviser, a solicitor, instructions to negotiate on matters such as salary with lawyers for the other party.

A question may arise whether a deal reached is enforceable: The key question will be whether the executive, in particular, had sought and got independent professional legal advice.

The law leans in favour of the protection of employees, particularly where the organisation in question has significant resources.

But does the law, and indeed judges, take sufficient notice of situations where it is the employee who is wielding the real power due to access to information and to other levers of power within an organisation?

In the US, in particular, the regulatory authorities and politicians are taking increasing account of the need to exert control by means of public disclosure over executives, particularly those in public limited companies.

Shareholder activists are now shaking up many companies where it is felt that the boards are no longer acting in the interest of the shareholders.

The Securities and Exchange Commission regulates US public companies.

It recently published new regulations aimed at demanding better information on executive pay, particularly with respect to often lucrative long-term incentive packages.

Similar reforms have been introduced in the UK.

In the US, there has been a steady rise in the volume of litigation over executive compensation.

Hewlett Packard was sued over allegedly wasteful severance packages.

Morgan Stanley has had to defend claims concerning executive pay awards.

Some executive compensation awards have been challenged over the right of shareholders for a so-called ‘say on pay’.

‘Say on pay’ is all about demanding detailed disclosure.

In July, the commission proposed new pay ‘claw-back’ rules.

Under the new rule, executive officers could be required to return incentive payments which turned out to have been awarded in error.

The commission makes clear that it is not challenging the right of boards to determine the remuneration of executives.

The most high-profile excessive compensation lawsuit of recent times concerns the social media company Facebook.

Late last month, the Delaware Chancery Court allowed the claim in Espinoza v Zuckerberg to go to trial.

Facebook founder Mark Zuckerberg is famously paid just $1 a year, but amassed huge paper wealth estimated at $28bn (€26.4m) early last year.

The claim is that six of the eight board directors received restricted options that were allegedly “excessive”.

It is, however, insisting on full disclosure and, where necessary, recovery of over payments.

In Ireland at least, there is ground to be made up, particularly with regard to non-commercial organisations.

According to accountants Deloitte, there is a requirement on charities, for example, in their financial statements to make aggregate disclosures of payments in financial statements.

This is contained in the Companies Act. However, there is no requirement to report payments on an individual basis.

But at a more basic level, it would appear, a commitment to abide by principles of transparency appears to be sketchy at best.

The IFA saga is a reminder that there is work to be done if a proper balance between serving professional administrators and the members to whom they report is to be restored.

Is it not time that members of representative organisations are provided with similar levels of protection?

This could address those situations where serving executives have developed what could be charitably described as an exaggerated sense of entitlement, and a unique ability to translate that sense of entitlement into hard cash over time.

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