Tuesday 22 January 2019 2:28 pm

Government refusal to extend pay gap reporting rules to Big Four branded ‘disappointing’

The government has been accused of letting the Big Four audit firms “evade reporting on their pay ratios” by excluding firms with their business model from new legislation.

The government’s small business minister refused to say whether new rules on executive pay transparency would be extended to partnerships during a grilling by MPs today.

Members of the Business, Energy and Industrial Strategy (Beis) Select Committee quizzed Kelly Tolhurst over government guidelines introduced in June, which force listed companies with over 250 employees to disclose the ratio between their CEO’s salary and that of their average UK worker.

The disparity has come into focus recently following the dismissal of Persimmon boss Jeff Fairburn, who left the housebuilder after a dispute over his £75m bonus.

Read more: Watchdog investigation into KPMG’s Carillion audit at ‘critical stage’

Rachel Reeves MP, Labour chair of the Beis committee, asked Tolhurst whether the new regulations should be extended to the Big Four – Deloitte, EY, KPMG and PwC – which are currently exempted as they operate under the partnership model that is also used by many large UK law firms.

“Why not just ask all organisations employing more 250 people, whether they’re quoted or not, to publish their pay ratio?” Reeves said.

Tolhurst said new corporate governance principle required more firms to outline their pay ratios, but said “for this particular new policy” companies like the Big Four would not be covered.

“I know, and I think that’s disappointing,” replied Reeves.

Big Four Accounting Firms Come Under Government Scrutiny
The Big Four audit firms use partnership models, meaning they are exempt from current legislation on pay transparency (Source: Getty)

Conservative MP Antoinette Sandbach pushed Tolhurst further on reporting requirements for partnerships, saying a lack on transparency also made it harder to identify disparities in pay between men and women. Tolhurst said she was “more than happy” to keep policies around reporting under review. “We will review it,” she said.

Reeves criticised Tolhurst’s response, saying the current situation would let the Big Four off the hook.

“The government’s rules mean the Big Four will be able to evade reporting on their pay ratios,” she said in a statement after the hearing.

“Given the Big Four accountancy firms are serious players in our economy and major employers, with thousands of staff on their payroll, the public and the Big Four’s own employees should expect them to be transparent about their pay ratios. The minister didn’t explain why the Government is content for the Big Four and others to avoid an obligation to publish their pay ratios between their senior staff and all employees.”

Read more: Government plans ‘make a nonsense’ of tackling gender pay gap, says senior MP

Responding to questions from the SNP’s Drew Hendry, Tolhurst said the government was not planning a more direct crackdown on bumper pay packages.

“Companies need to look at the wider impact of their levels of pay, and the concerns that may raise within the community and their organisations and for shareholders,” Tolhurst told MPs. “But ultimately that is a decision for the companies.”

Asked whether she was happy with the current ratio of executive pay compared to lower-ranking workers, Tolhurst said the government was pushing for greater transparency around remuneration.

“A lot of these individuals, as we well know, are operating in an international marketplace, so it is right that that flexibility is there to enable our companies to attract the right talent,” she said. “So, personally, I don’t see a time when we would want to intervene to restrict that.”