Big firms will have to justify their chief executives’ salaries and reveal the gap to their average UK worker, under new laws laid in Parliament this week (June 11).
For the first time ever UK listed companies with more than 250 UK employees will have to disclose and explain this difference - known as pay ratios - every year.
The Department for Business, Energy and Industrial Strategy said 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 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.
“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 Department for Business, Energy and Industrial Strategy said the new regulations form a core part of the government’s modern Industrial Strategy which aims make sure the UK’s largest companies are more transparent and accountable to their employees and shareholders.
In addition to the reporting of pay ratios, the news 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.
Subject to Parliamentary approval, the regulations will come into effect from January 1 2019 meaning that companies will start reporting their pay ratios in 2020.