BEIS introduced new CEO pay transparency measures in the United Kingdom. The regulations have been in force since the 1st of January 2019.
So, let's take a closer look at what the UK pay ratio disclosure means for company executives and workers. How transparent will it be?
Who needs to follow the UK pay ratio regulations? All UK listed companies that employ more than 250 staff need to comply.
When do the first statutory disclosures begin? Large size companies must provide the information from the beginning of the year 2020.
What do the pay ratio disclosures force companies to do? They must:
What is the biggest significance of the new executive pay transparency measures? The new regulations force the biggest companies in the United Kingdom to disclose and explain the pay reward given to their top bosses.
In fact, it is the first time large UK companies MUST justify the gap between CEO salaries and the wages of their average worker.
The new executive pay ratio regulations are now a statutory annual requirement. Thus, companies must file their reports starting from 2020 onward.
Note: The initial statutory requirement covers CEO and employee pay awarded during the 2019 financial year.
But wait... there's more:
Besides the reporting of pay ratios, the new executive pay transparency measures also require:
The government claims the reforms were part of their action to upgrade corporate governance and the business environment. The aim is to ensure the United Kingdom remains as a world leader as a place to invest, to grow a business, and to work.
So, why has the government brought in the new reforms? It follows calls from investors and from shareholders.
They wanted companies to do more and provide explanations on how boardroom pay aligns with wider company rewards.
Closer scrutiny exposes the purpose behind the new pay ratios regulations. Yes, it will hold the largest businesses in Britain to account for excessive salaries. But, the changes to the corporate governance code will also provide a greater voice for employees in the boardroom.
The government also plans to introduce a new statutory duty on companies. The main aim is to set out the impact of share price growth on executive pay outcomes.
It will provide greater clarity on the impact that significant share price growth has on executive pay outcomes. It should show whether discretion was exercised before the finalisation of pay awards.
Corporate governance upgrades form a key part of the UK's Industrial Strategy. It is a long term plan to build a Britain that is fit for the future through a stronger and fairer economy.
New CEO Pay Ratio Regulations Take Effect in United Kingdom