Companies may have to reveal pay gap between executives and employees

By Brian Collett — Britain’s biggest companies may have to reveal the gap between their senior executives’ remuneration and the average pay of their employees. 

 

The proposal is one of several intended changes appearing in a government green paper after years of disquiet over the size of financial rewards handed to UK bosses, including in loss-making companies. 

 

A second proposal in the green paper – a discussion document that is an early part of the parliamentary legislation process – would demand wider consultation on remuneration packages, with both shareholders and other stakeholders. 

 

A third proposal, possibly the most controversial, would make an annual shareholders’ vote on pay legally binding. 

However, a suggestion that companies should have to appoint employees to their boards has been dropped. Prime minister Theresa May, in a speech to the Confederation of British Industry, the UK employers’ body, ruled out that measure. 

 

The government, nevertheless, is considering giving employees’ representatives an advisory role rather than power on remuneration deals. 

 

The extent of concern about executive pay was reflected in a study by the Trades Union Congress showing that on average the pay of a FTSE 100 company boss was 123 times the organisation’s average full-time salary.

 

The report added that the median pay of leading FTSE 100 company directors rose in the 2010-15 period by 47 per cent to £3.4m ($4.2m, €4m).  

 

Immediately after the green paper was published Andy Haldane, the Bank of England’s chief economist, rejected the proposals for legally binding votes on pay and the publication of remuneration ratios. 

 

At the same time a report from the Bank of England and the Big Innovation Centre, a think tank created to help businesses, public agencies and universities to implement innovation principles, said binding votes would rob Britain’s largest companies of valuable talent. 

   

It said shareholders should instead have more say on executive pay, not powers to decide, but recommended a binding regime if a company failed to obtain satisfactory advisory support. 

     

The government said in a following statement: “The UK has led the world in corporate governance, but our strong reputation can only be maintained if government and business regularly review and upgrade our governance. 

     

“Good governance helps companies take better decisions, for their own long-term benefit and the economy overall, ensuring public trust in British business and making sure the UK is the best place in the world to do business.” 

     

A green paper would have to be followed by a white paper, which is a policy statement, and the policy would be subject to several parliamentary stages before becoming law. The journey through Parliament could take at least 12 months.