UK’s biggest firms will need to justify pay gap between bosses and workers

For the first time ever, listed companies will legally be required to publish and justify pay differences between chief executives and their staff.

UK listed companies with more than 250 employees will have to disclose and explain this difference – known as ‘pay ratios’ – every year.

This follows concerns that some chief executives have been receiving salaries that are out-of-step with company performance.

These new regulations are part of a package of reforms which will hold big businesses to account for the salaries they pay, while giving employees a greater voice in the boardroom.

Business Secretary Greg Clark, commented, “One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business.

“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.

“Requiring large companies to publish their pay gaps will build on that reputation by improving transparency and boosting accountability at the highest levels, while helping build a fairer economy that works for everyone.”

The new regulations form a core part of the government’s modern Industrial Strategy which aims to build on the UK’s strong reputation and make sure the country’s largest companies are more transparent and accountable to their employees and shareholders.

In addition to the reporting of pay ratios, the new laws will also:

• Require all large companies to report on how their directors take employee and other stakeholder interests into account.
• Require large private companies to report on their responsible business arrangements.
• 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.

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