Firms to have to justify pay gap between bosses and workers

 
Jasper Jolly
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Cabinet Meeting At Downing Street
Business secretary Greg Clark said high governance standards are an asset for the UK (Source: Getty)

Listed British firms are to be forced to publish and "justify" the pay difference between their chief executives and the rest of their staff.

The government will introduce new laws to bring forward the reforms, which will come into force for firms with more than 250 employees from 1 January 2019, with reporting to start in 2020.

Directors will also have to report how how they "take employee and other stakeholder interests into account", how share price moves could affect long-term incentive plans, and require large private companies to report on their "responsible business arrangements".

The reforms follow political pressure on the government to address high executive pay after a decade of slow average wage growth.

Read more: Companies warned their investor pay revolts will be named in new register

The government has previously introduced a public register of firms which have experienced a shareholder rebellion of 20 per cent or more against a resolution in a bid to increase transparency and accountability.

Companies have so far for the most part escaped shareholder opprobrium over executive pay in the latest round of annual general meetings. Among FTSE 350 firms housebuilder Persimmon faced a major revolt, with 49 per cent of investors voting against its remuneration report, while Zoopla owner ZPG and storage firm Safestore have been among the firms to see minority rebellions.

However, satellite firm Inmarsat and gambling software maker Playtech are the only FTSE 350 firms to have been majority votes against executive pay packages, according to Proxy Insight's pay tracker.

Greg Clark, business secretary, said the UK's reputation for corporate governance is “one of Britain’s biggest assets in competing in the global economy".

Read more: Lloyds faces potential shareholder pay revolt

“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," he said.

“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.”

Chris Cummings, chief executive of the investor representative, the Investment Association, said the publication of pay ratios will "shine a spotlight" on executive pay.

Luke Hildyard, director of the High Pay Centre, a campaign group, said the move was "welcome", and that he hopes "it will initiate a more informed debate about what represents fair, proportionate pay for workers at all levels.”

Read more: Playtech shareholders revolt against boss's 67 per cent pay rise

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