Following a consultation on corporate governance, the government has said that it will introduce legislation to require listed companies to reveal the pay ratio between bosses and their workers.
Over the next few months, the government will therefore legislate to require about 900 listed companies to publish (and justify) the pay ratio between CEOs and their average UK worker every year. In addition, all companies “of a significant size” will have to publicly explain how their directors take employees’ and shareholders’ interests into account and all large companies will be required to make their “responsible business arrangements” public.
The reforms will include the world’s first public register of listed companies where a fifth of investors have objected to executive annual pay packages. The new scheme will be set up in the autumn and will be overseen by the Investment Association, a trade body that represents UK investment managers.
Although the prime minister had originally indicated that workers’ interests would be represented at board level, the government has now made clear that firms can instead assign a non-executive director to represent employees, create an employee advisory council or nominate a director from the workforce.
The government also announced that it will ask the Financial Reporting Council (FRC) to revise the UK Corporate Governance Code to be more specific about the steps that premium-listed companies should take in the event of significant shareholder opposition to executive pay awards and give remuneration committees more responsibility for overseeing corporate pay and incentives.
The FRC intends to consult on amendments to the code in late autumn with a view to publishing a revised code by mid-2018, meaning that it would apply to the majority of companies in 2019.
Gerard Airey of Thompsons Solicitors said “I think it’s very positive that companies will now have to justify the pay ratio between a CEO and their average UK worker. This gives greater transparency and the additional accountability to their employees will hopefully mean more engagement between CEO’s and their workers.”
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