UK companies told to justify their executive pay gap UK companies told to justify their executive pay gap

UK companies told to justify their executive pay gap
27 Jun 2018

Large UK companies are now required to justify their chief executives’ salaries and reveal the gap between this figure and the average pay in their organisation.

All UK-listed companies with more than 250 employees must comply. They will also have to report both on how their directors take employee and other stakeholder interests into account and on their responsible business arrangements. They must also show what effect a share price increase would have on executive pay.

Business secretary Greg Clark said the changes would improve transparency and boost accountability towards both employees and shareholders. 

The changes follow increasing calls for transparency over executive pay. According to Out-Law, the Investment Association (IA) last year called on its members to voluntarily disclose the pay ratio between a company's chief executive and its median or average employee, as well as the chief executive and the rest of the executive team.

IA chief executive Chris Cummings welcomed the latest move.

"Investors are demanding greater director accountability and transparency on executive remuneration," he said. "Pay ratios will shine a spotlight on what executives are being paid compared with their workforce, and investors will expect boards to articulate why the ratio is right for the company and how directors are fulfilling their duties."

Subject to parliamentary approval, the new rules will come into effect from 1 January 2019, with companies starting to report their pay ratios in 2020.

In December, the Financial Reporting Council published a draft revised UK Corporate Governance Code, which is set to come into force for accounting periods beginning 1 January 2019. The proposed new Code includes provisions that direct remuneration committees to act in a more strategic and principled manner.

Emma Woollacott

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.

Large UK companies are now required to justify their chief executives’ salaries and reveal the gap between this figure and the average pay in their organisation.

All UK-listed companies with more than 250 employees must comply. They will also have to report both on how their directors take employee and other stakeholder interests into account and on their responsible business arrangements. They must also show what effect a share price increase would have on executive pay.

Business secretary Greg Clark said the changes would improve transparency and boost accountability towards both employees and shareholders. 

The changes follow increasing calls for transparency over executive pay. According to Out-Law, the Investment Association (IA) last year called on its members to voluntarily disclose the pay ratio between a company's chief executive and its median or average employee, as well as the chief executive and the rest of the executive team.

IA chief executive Chris Cummings welcomed the latest move.

"Investors are demanding greater director accountability and transparency on executive remuneration," he said. "Pay ratios will shine a spotlight on what executives are being paid compared with their workforce, and investors will expect boards to articulate why the ratio is right for the company and how directors are fulfilling their duties."

Subject to parliamentary approval, the new rules will come into effect from 1 January 2019, with companies starting to report their pay ratios in 2020.

In December, the Financial Reporting Council published a draft revised UK Corporate Governance Code, which is set to come into force for accounting periods beginning 1 January 2019. The proposed new Code includes provisions that direct remuneration committees to act in a more strategic and principled manner.

Emma Woollacott

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.

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