Firms will soon have to publish pay gap between chief execs and average workers

The UK’s largest public businesses may soon have to publish the gap between the pay of their chief executive and an average worker, with business secretary Greg Clark stating that all companies with over 250 employees will be required to disclose and explain this difference, known as the “pay ratio”.

The plan has been welcomed by equal pay campaigners, business and investor groups, but the TUC said it was a “first step” and suggested that even tougher rules are needed.

In recent years, shareholders have become increasingly vocal with regards to executive pay levels, and have voted against what they see as excessive pay awards.

However, often chief executives are paid in line with the performance its company’s share price.

The plans will be presented to Parliament today and they come following concerns that some chief executives have been receiving salaries that are not in step with company performance.

Clark said: “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.”

The Investment Association are in support of the plans, as are CBI and the High Pay Centre.

The Investment Association chief executive Chris Cummings said that investors wanted greater director accountability and more transparency over executive remuneration.

“Investors will expect boards to articulate why the ratio is right for the company and how directors are fulfilling their duties,” he said.

The Confederation of British Industry’s Matthew Fell said high pay was only ever justified by outstanding performance: “This legislation can help to develop a better dialogue between boards and employees about the goals and aspirations of their business, and how pay is determined to achieve this shared vision.”

If the plans are approved, the regulations will come into effect from the beginning of 2019, meaning that companies will have to begin reporting their pay ratios in 2020.

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