New regulations have into force this month to make companies “justify their pay” for top bosses, the Government has revealed.
The new pay ratio regulations will apply to large UK listed companies with over 250 employees.
It means that, for the first time, UK companies will be required to disclose and explain every year their top executives’ pay and the gap between that and their average worker.
It introduces a new statutory requirement for UK listed companies to disclose annually the ratio of their CEO’s pay to the median, lower quartile and upper quartile pay of their UK employees, with the first disclosures starting from 2020.
The requirement will also ask large companies to report on how their directors take employee and other stakeholder interests into account and require large private companies to report on their corporate governance arrangements.
The changes in legislation follow calls from investors and shareholders for companies “to do more to explain how pay in the boardroom aligns with wider company pay and reward”.
Together, the changes form part of a packet of measures known as the UK’s modern Industrial Strategy.
Commenting on the announcement, Business Secretary Greg Clark said: “Britain has a well-deserved reputation as one of the most dependable and best places in the world to work, invest and do business and the majority of our biggest companies act responsibly, with good business practices.
“We do however understand the frustration of workers and shareholders when executive pay is out of step with performance and their concerns are not heard.
“The regulations coming into force today will build on our reputation by increasing transparency and boosting accountability at the highest level – giving workers a stronger dialogue and voice in the boardroom and ensuring businesses are accountable for their executive pay.”
He added: “These new regulations are a key part of the wider package of corporate governance upgrades we are bringing forward as a government to help build a stronger, fairer economy that works for businesses and workers.”
Samantha Randall an employment law expert with Palmers, said: “These measures should help to combat the issue of many top executives at businesses receiving large bonuses and other payments that are not in line with the businesses performance.”