Companies must publish pay gap between CEOs and average worker, UK government says

The UK’s biggest public businesses will have to publish the gap between the pay of their chief executive and an average worker, according to rules to be unveiled in parliament on Monday.

Greg Clark, the business secretary for the Conservative government, said directors of all companies with more than 250 employees would be required to disclose and explain this difference, known as the “pay ratio”.

The long-awaited plans have been criticised by the opposition Labour Party and trade unions for failing to tackle the “entrenched inequality” within Britain’s biggest firms.

Shareholders have become increasingly vocal over executive pay levels, and have voted against what they see as excessive pay awards, most notably the high sums paid to Sir Martin Sorrell, former boss of public relations company WPP.

As well as introducing the publication of pay ratios, the rules will also require listed companies 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, companies would start reporting their pay ratios in 2020.

Clark said: “Most of the UK’s largest companies get their business practices right, but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance.”

The move comes after years of shareholder and public outrage over bumper chief executive pay at firms such as Persimmon and BP.