Rules aimed at closing pay gap between bosses and workers come into force

New rules come into effect after several chief executives came under fire over wages in 2018

Caitlin Morrison
Tuesday 01 January 2019 03:00 GMT
Chuka Umunna on why exorbitant executive pay is bad for business and society

New regulations that will force UK companies to reveal pay ratios and explain the gap between the earnings of top bosses and their workers come into effect today.

Under the new rules, UK listed firms with more than 250 employees will have to disclose the pay ratio within the business, as well as justifying executive pay packets and explaining why senior staff earn so much more than the average worker.

Companies will begin reporting on pay ratios in 2020, and will also be required to provide information on their corporate governance practices.

The pay regulations follow a number of highly criticised pay packages handed out to top executives at UK businesses in 2018.

Persimmon boss Jeff Fairburn was asked to leave after his £75m bonus payout had a “negative impact” on the construction business. He was originally granted a £100m bonus, but after a public backlash agreed to reduce that sum by 25 per cent.

However, Mr Fairburn later walked out of an interview after being questioned about the payout, leading to further publicity about his earnings and weeks later his departure was announced.

Meanwhile, outgoing BT boss Gavin Patterson came under fire when he was awarded a pay rise and a £1.3m bonus two weeks after announcing 13,000 job cuts.

Business secretary Greg Clark said: “Britain has a well-deserved reputation as one of the most dependable and best places in the world to work, invest and do business and the vast majority of our biggest companies act responsibly, with good business practices.

“We do however understand the frustration of workers and shareholders when executive pay is out of step with performance and their concerns are not heard.”

He added: “The regulations coming into force today will build on our reputation by increasing transparency and boosting accountability at the highest level – giving workers a stronger dialogue and voice in the boardroom and ensuring businesses are accountable for their executive pay.

“These new regulations are a key part of the wider package of corporate governance upgrades we are bringing forward as a government to help build a stronger, fairer economy that works for businesses and workers.”

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TUC general secretary Frances O’Grady said: “Requiring companies to publish their pay ratios is important. More transparency helps workers and unions to put pressure on greedy bosses.

“But we need a bigger shake up of corporate governance in the UK. Worker representatives should have a guaranteed place on boardroom pay committees. That would inject some much-needed common sense into decision-making about executive pay.”

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