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Companies must reveal pay disparity between boss and workers

Companies that are publicly listed in the UK will be obliged to publish the pay ratio between their chief executive and their average British worker under government plans.

The proposals, which will be announced on Tuesday and will come into force by next June, will also aim to give workers a voice at boardroom level. But the plans fall short of the corporate governance revolution promised last year by Theresa May.

A new corporate governance code will include stipulations for listed companies to assign a non-executive director to represent employees, create an employee advisory council or nominate a director from the workforce.

However, this would be under a so-called “comply or explain” basis, meaning companies could opt not to undertake any of the measures if they explain why they are not doing so.

That represents a substantial change from May’s original pledge on the subject. When running for the leadership of the Conservative party last year she suggested she would oblige big companies to have their workforce represented on boards. But in a speech to the business lobby group the CBI later in the year, May signalled she would backtrack on the idea that this should be mandatory, saying it was “a question of finding the model that works”.

Listed companies which have faced regular shareholder opposition over top-level pay will also be included on a new public register. There will also be a voluntary set of guidelines for large private companies.

The Department for Business, Energy and Industrial Strategy billed the changes as a “world-leading package of corporate governance reforms” and the package has won the support of the Institute of Directors (IoD) and the CBI.

The requirement will mean that about 900 large listed companies will need to annually publish and justify the ratio of pay between their chief executive and the firm’s average UK worker, BEIS said.

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But the plans were criticised by Labour, the Liberal Democrats and trade unions. Frances O’Grady, the general secretary of the TUC, described them as “a feeble proposal, spelling business as usual for boardrooms across Britain”.

She said: “The prime minister’s pledge to put workers on company boards has been watered down beyond all recognition. This now amounts to little more than a box-ticking exercise.”

During the general election Jeremy Corbyn, the Labour leader, won support by focusing heavily on pay disparities, suggesting a possible pay cap that would limit the highest paid member of staff to 20 times the average worker for companies with public sector contracts.

On Monday MonRebecca Long-Bailey, the shadow business secretary, described the government’s proposals as “just more crony capitalism” and questioned why the register of companies that face shareholder revolts would be maintained by the Investment Association, a City trade body. She said: “The Tory plan is a fraud, watering down a promise to increase workers’ voices to a lone representative on the board of directors or a separate employee advisory council. Each of these will be easily outvoted or ignored.

“The Tories seem to believe fixing Britain’s broken system of corporate governance, which not only leads to scandals like BHS, extreme executive pay, but also growing inequality and stagnating wages, is just a matter of changing one or two nameplates around the boardroom table.”

Vince Cable, the Lib Dem leader and former business secretary, said the executive pay register would contribute little because the information was already available and that the new code would be voluntary for large private companies. “The overblown rhetoric from Theresa May is completely at odds with the weakness of the new rules,” he said.

The plans will also oblige large listed companies “to publicly explain how their directors take employees’ and shareholders’ interests into account” and to make public policies on responsible business.

Greg Clark, the business secretary, said: “One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business. Our legal system, our framework of company law and our standards of corporate governance have long been admired around the world.

“We have maintained such a reputation by keeping our corporate governance framework under review. Today’s reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders.”

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Stephen Martin, the head of the IoD, said his organisation welcomed “the pragmatic approach the government is taking to improve how company boards work”.

He said Clark was “taking a sensible approach on giving workers a bigger say, by allowing companies to choose the best way to implement the new rules”.

Paul Drechsler, the CBI president, said: “We know that how companies act and behave determines the way people think about business. Companies take this seriously and we look forward to working closely with the government to ensure the UK maintains its reputation as a global leader in this field and as a primary location for international investment.

“The CBI is very clear that the unacceptable behaviour of a few does not reflect the high standards and responsible behaviour of the vast majority of companies.”


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