UK CEO-to-worker pay ratios to be reported from June

The Department for Business, Energy and Industrial Strategy (BEIS) has confirmed that by June, UK employers will be required to report annually on how much CEOs are paid compared with the average wages of their workers.

The changes were announced in the government’s response to a green paper on corporate governance reforms.

In addition to reporting CEO-to-worker pay ratios, businesses will also be required to provide a narrative explaining that ratio in the context of pay and conditions across the wider workforce. They must likewise explain remuneration policies and potential outcomes from complex, share-based incentive schemes.

BEIS said the aim of the move was to introduce a corporate governance regime that improved business performance and encouraged an economy that “works for everyone”, according to People Management.

But Roger Barker, head of corporate governance at the Institute of Directors, said he believed it would be difficult to make comparisons between pay ratios at different companies and draw conclusions over whether executive pay at a specific organisation was too high or low.

"Companies differ greatly in terms of their average level of pay depending on their size and sector," he said. "Where the pay ratio is perhaps of most interest as an economic indicator is at the level of the overall economy."

He added that the aggregate figure estimated at around 129:1 within FTSE 100 firms showed that overall rates of salary increase at major listed companies had been excessive relative to the rewards enjoyed by other stakeholders.

The discrepancy between CEO and average worker pay was highlighted earlier this year when calculations published by the Chartered Institute of Personnel and Development and the High Pay Centre (HPC) suggested that salaries for leading chief executives would pass the median UK gross annual wage of £28,758 (US$39,615) for full-time employees just three days into the working year.

The move to introduce pay ratio reporting follows the implementation of gender pay gap reporting earlier this year, which highlighted significant gender pay discrepancies in companies with 250 or more employees.

Luke Hildyard, the HPC’s director, said gender pay reporting had prompted a useful debate about the UK’s working culture. "Similarly, ratios can show us the scale of pay inequalities and encourage people to question what it is that causes the gap between those at the top and everyone else, what are the consequences of this gap and what measures we could implement to close it," he added.

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

The Department for Business, Energy and Industrial Strategy (BEIS) has confirmed that by June, UK employers will be required to report annually on how much CEOs are paid compared with the average wages of their workers.

The changes were announced in the government’s response to a green paper on corporate governance reforms.

In addition to reporting CEO-to-worker pay ratios, businesses will also be required to provide a narrative explaining that ratio in the context of pay and conditions across the wider workforce. They must likewise explain remuneration policies and potential outcomes from complex, share-based incentive schemes.

BEIS said the aim of the move was to introduce a corporate governance regime that improved business performance and encouraged an economy that “works for everyone”, according to People Management.

But Roger Barker, head of corporate governance at the Institute of Directors, said he believed it would be difficult to make comparisons between pay ratios at different companies and draw conclusions over whether executive pay at a specific organisation was too high or low.

"Companies differ greatly in terms of their average level of pay depending on their size and sector," he said. "Where the pay ratio is perhaps of most interest as an economic indicator is at the level of the overall economy."

He added that the aggregate figure estimated at around 129:1 within FTSE 100 firms showed that overall rates of salary increase at major listed companies had been excessive relative to the rewards enjoyed by other stakeholders.

The discrepancy between CEO and average worker pay was highlighted earlier this year when calculations published by the Chartered Institute of Personnel and Development and the High Pay Centre (HPC) suggested that salaries for leading chief executives would pass the median UK gross annual wage of £28,758 (US$39,615) for full-time employees just three days into the working year.

The move to introduce pay ratio reporting follows the implementation of gender pay gap reporting earlier this year, which highlighted significant gender pay discrepancies in companies with 250 or more employees.

Luke Hildyard, the HPC’s director, said gender pay reporting had prompted a useful debate about the UK’s working culture. "Similarly, ratios can show us the scale of pay inequalities and encourage people to question what it is that causes the gap between those at the top and everyone else, what are the consequences of this gap and what measures we could implement to close it," he added.

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.