Big business compelled to justify pay gaps

Big businesses in the UK will be compelled to explain differences in pay between their chief executives and their average workers under new plans to be presented to parliament today by Business Secretary, Greg Clark.

A new metric, known as the ‘pay ratio’, will be used to monitor the renumeration structures at companies with more than 250 employees, which the Government hopes will help help bring executive pay more in line with company performance.

There has been significant criticism of high level pay in recent years, with shareholders and employees alike often questioning the value for money being offered by bosses on big salaries and bonuses.

As such, an extra measure being deployed at the same time as the pay ratio is a requirement for companies to detail what effect a rising share price will have on executive pay.

The new regulations form a core part of the Government’s Industrial Strategy which aims to make sure the UK’s largest companies are more transparent and accountable to their employees and shareholders.

Business Secretary Greg Clark said: “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.

The new laws follow last year’s corporate governance reforms which sought to increase boardroom accountability.

Subject to Parliamentary approval, the regulations will come into effect from 1 January 2019 meaning that companies will start reporting their pay ratios in 2020.

“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.”