Government to mandate listed company pay ratio data

Listed companies will have to justify their chief executives’ salaries and reveal the gap to their average UK worker, under new laws to be laid in Parliament, as part of the government’s bid to improve business transparency and accountability

This means that for the first time, UK listed companies with more than 250 UK employees will have to disclose and explain pay ratios on an annual basis.

The new regulations are part of a package of reforms which will also require all large companies to report on how their directors take employee and other stakeholder interests into account.

Large private companies will be required to report on their responsible business arrangements, and listed companies will have to show what effect an increase in share prices will have on executive pay to inform shareholders when voting on long-term incentive plans

Subject to Parliamentary approval, the regulations will come into effect from 1 January 2019 meaning that companies will start reporting their pay ratios in 2020.

Chris Cummings, chief executive of the Investment Association (IA), said: ‘We welcome today’s package of reforms as they focus on the long-term interest of all company stakeholders, including shareholders and employees.

‘Through the IA’s public register we are seeing investors hold business to account. The IA wants to ensure UK listed companies are run in a way that delivers long-term returns for savers and pensioners.’

Luke Hildyard, director of the High Pay Centre said: ‘Pay ratios provide an insight into the culture and employment practices of major companies that is useful to investors, workers and wider society alike.

‘This is a welcome move that will greatly improve public understanding of the pay gap between those at the top and low and middle-income earners.’

The CBI said the legislation would help to develop a better dialogue between boards and employees about the goals and aspirations of their business, and how pay is determined to achieve this shared vision.

However, its chief UK policy director Matthew Fell said: ‘Ratio comparisons between sectors and firms will be as meaningless as comparing apples and oranges. What’s most important is that all businesses make progress towards fair and proportionate pay outcomes.’

Report by Pat Sweet

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