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Leadership / Strategy

UK Companies will have to Justify Pay Ratios

The UK government will lay out new laws in Parliament that will make companies with more than 250 staff justify pay gaps between employees and employers today.

Large companies under the proposed new regulations will have to justify the salaries of their chief executives and disclose what the pay ratio is between them and the average worker.

Luke Hildyard, Director of the High Pay Centre commented in the announcement that: “Pay ratios provide an insight into the culture and employment practices of major companies that is useful to investors, workers and wider society alike.’’

Also expected to be included in the new regulations are requirements to report on how stakeholders and employee interests are accounted for at the director level.

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“Improving transparency and accountability in this way, plus other initiatives such as giving employees a voice in the boardroom, will help create a more equal and fair society while ensuring that the UK remains a world-leading place to invest and do business,’’ commented Government Minister Lord Duncan in a released statement.

Companies will also have to state what responsible business arrangements they have put in place and will be required to show what effect an increase in share prices will have on executive pay. This is in order to inform shareholders voting on long-term incentive plans.

Reacting to the announcement, Chris Cummings Chief Executive of the Investment Association commented: “Investors are demanding greater director accountability and transparency on executive remuneration. Pay ratios will shine a spotlight on what executives are being paid compared with their workforce.’’

The new regulations follow from parliamentarian work that began in March when UK MP’s pledged to investigate the gender pay gap and executive payments.

While executive salaries are always under scrutiny,  it comes to the forefront every year on the 4th of January. When Campaigners highlight that the average executives’ pay has surpassed the median annual salary of £28,000 within three days.

If the new regulations are approved by Parliament, they will come into effect on the 1st of January 2019, with companies expected to begin reporting their pay ratios in 2020.
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CBR Staff Writer

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