Firms forced to justify pay
NEW rules have come into force that will require the biggest companies to justify bosses’ salaries and reveal the pay gap with their average workers.
The measure is an effort to improve transparency and accountability to workers and shareholders over executive pay following concerns that some executive salaries are out of step with company performance, say ministers.
The new regulation means that for the first time UK-listed companies with more than 250 employees will have to disclose every year the difference between their chief executive’s pay and their average UK worker, known as the “pay ratio”.
Companies will start reporting in 2020, which will cover chief executive and employee pay awarded in 2019.
Alongside the pay ratio, firms will also set out how the growth in a company’s share price affects executive pay.
The move comes following public and political uproar over recent pay packets for executives at companies such as Persimmon, WPP and BP.
Persimmon boss Jeff Fairburn resigned following outrage over his £75million bonus, while shareholders revolted over the termination package for former WPP chief executive Sir Martin Sorrell.
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 vast 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.”
TUC general secretary Frances O’Grady said publishing pay ratios was important but: “Worker representatives should have a guaranteed place on boardroom pay committees. That would inject much-needed common sense into decision-making.”