Listed companies will have to reveal the pay ratio between their chief executive and their average worker in new measures being rolled out as part of corporate governance reforms.
The reforms are designed to enhance the public’s trust in business and increase boardroom accountability. Other measures include naming companies where there is significant shareholder opposition to executive pay packages, and ensuring the employee voice is heard in the boardroom.
Responding to the government’s reforms, Stephen Martin, Director General of the Institute of Directors, said: ‘Pay ratios will sharpen the awareness of boards on the issue of remuneration, but they can be a crude measure. Companies will have to prepare themselves to explain how pay as a whole in their business operates, and why executives are worth their packages.’
In the coming months the government will introduce new laws to require: around 900 listed companies to annually publish and justify the pay ratio between CEOs and their average UK worker; all companies of a significant size to publicly explain how their directors take employees’ and shareholders’ interests into account; and, all large companies to make their responsible business arrangements public.
The Financial Reporting Council will consult on amendments to the UK Corporate Governance Code in late autumn with a view to publishing a revised code by mid-2018. This would mean the code would apply to the majority of companies in 2019.
