Executive pay rules enforced in effort to aid transparency
● Firms with more than 250 staff to reveal ‘pay ratio’ ● Ministers hope move will boost accountability
Britain’s biggest firms will now be required to justify their bosses’ salaries and report the pay gap with their average workers under new rules that come into force today.
The newly implemented measure is an attempt to boost transparency and accountability to workers and shareholders over executive pay, on the back of concerns that chief executive salaries are out of step with company performance, say ministers.
It means that Uk-listed firms with more than 250 employees will have to annually disclose the difference between their chief executive’s pay and that of their average UK worker, known as the “pay ratio”.
Companies will start reporting on the pay ratio in 2020, which will cover chief executive and employee pay awarded in 2019.
Alongside the pay ratio, firms will be required to set out how the growth in a company’s share price affects executive pay.
The move follows public and political uproar over recent pay packets for executives at companies such as Persimmon, WPP and BP.
Persimmon boss Jeff Fairburn, who was set to depart the housebuilder yesterday, resigned after outrage over his £75 million bonus, while shareholders revolted over the termination package for former WPP chief executive Sir Martin Sorrell.
TUC general secretary Frances O’grady said publishing pay ratios is important, but more action is needed.
She said: “More transparency helps workers and unions to put pressure on greedy bosses. But we need a bigger shake up of corporate governance in the UK.
“Worker representatives should have a guaranteed place on boardroom pay committees. That would inject some much-needed common sense into decision-making about executive pay.”
UK business secretary Greg Clark said the new regulation “will build on [Britain’s] reputation by increasing transparency and boosting accountability at the highest level”.
Meanwhile, UK ring-fencing requirements are also set to come into force today, meaning that systemically important UK banks will have to separate traditional retail services, like deposit accounts and mortgages, from more complexinvestmentbankingofferings, such as foreign exchange or derivative trading.
Jon Holt, head of financial services at KPMG UK, said ring-fencing could affect the maturing challenger, digital and start-up banking sector “as the UK now has five new big banks purely focused on UK retail customers”. He added: “I expect to see an increase in competition for current accounts, mortgages and customer service… We’ll soon see whether our challengers have done enough in the last decade to stand up to the competition they’ll face in the next.”