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Britain

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

PUBLISHED : Monday, 11 June, 2018, 6:51am
UPDATED : Monday, 11 June, 2018, 10:30pm

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”.

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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.

We understand the anger of workers and shareholders when bosses’ pay is out of step with company performance
UK Business Secretary Greg Clark

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.

Shell, Lloyds, AstraZeneca, Playtech, William Hill, GVC, and Inmarsat are among firms who have been subject to shareholder revolts at AGMs this year.

Last week, housebuilder Persimmon admitted a raft of failures that led to an embarrassing shareholder rebellion over pay for top executives of more than £100 million (US$134 million).

Fat-cat bosses are masters of self-justification and shrugging off public outcry. New rules are needed to make sure they change
Trades Union Congress General Secretary Frances O’Grady

Rebecca Long Bailey, the shadow business and industrial secretary, said the Conservatives had missed an opportunity, and pointed out the rule changes had been announced by the government before.

“This won’t end staggering pay disparity or help hard-up workers at the bottom of the chain,” she said.

The TUC general secretary, Frances O’Grady, said publishing and justifying pay ratios was a first step, but more was needed.

“Fat-cat bosses are masters of self-justification and shrugging off public outcry. New rules are needed to make sure they change,” she said.

“We need guaranteed places for worker representatives on boardroom pay committees. That would bring a bit of common sense and fairness to decision-making when boardroom pay packets are approved.”

This won’t end staggering pay disparity or help hard-up workers at the bottom of the chain
Shadow business and industrial secretary Rebecca Long Bailey

The plans have received a cautious welcome from some equal pay campaigners, business and investor groups.

Chris Cummings, the chief executive of the Investment Association, said investors wanted greater director accountability and more transparency over executive pay.

“Investors will expect boards to articulate why the ratio is right for the company and how directors are fulfilling their duties,” he said.

The director of the High Pay Centre, Luke Hildyard, said pay ratios could prove useful to investors, workers and society more broadly.

“We hope that [the move] will initiate a more informed debate about what represents fair, proportionate pay for workers at all levels,” he said.

The Confederation of British Industry’s Matthew Fell said high pay was only ever justified by outstanding performance.

“This legislation can 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.”