Moves to improve transparency
Bigger firms face tough new rules to tackle fat cat pay
Jeff Fairbairn: his remuneration package was subject to criticism
Britain’s bigger listed companies will have to justify how much they pay their bosses and how their salaries relate to employees under new regulations to improve transparency on executive pay.
New regulations come into force today affecting listed companies with more than 250 employees. Companies will begin reporting the data from next year, covering CEO and employee pay awarded this year.
In addition to the reporting of pay ratios, the new laws also require all large companies to report on how their directors take employee and other stakeholder interests into account and require large private companies to report on their corporate governance arrangements.
These reforms are part of the Government’s action to upgrade the corporate governance and business environment.
Reforms follow outrage from investors and shareholders over fat cat salaries and pay, such as the £75 million bonus paid to Jeff Fairbairn, the chief executive of house builder Persimmon.
The ratios regulations will hold Britain’s largest businesses to account for excessive salaries, while recent changes to the corporate governance code give employees a greater voice in the boardroom.
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.
“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.”
Alongside the pay ratio reporting will be a new statutory duty on companies to set out the impact of share price growth on executive pay outcomes.
This will provide greater clarity and for shareholders about the impact that significant share price growth can have on executive pay outcomes and whether discretion has been exercised before pay awards are finalised.
The corporate governance upgrades introduced by the Government form part of the UK’s modern Industrial Strategy.
Rebecca Long-Bailey MP, Labour’s Shadow Business Secretary, said: “Executive pay is running out of control. While the Conservatives’ watered-down regulations will only require large companies to publish pay bands, Labour in government will take decisive action on excessive pay.
“Labour is committed to rolling out maximum pay ratios of 20:1 in the public sector and in companies bidding for public contracts, because it cannot be right that wages at the top keep rising while everyone else’s stagnates.
“Labour will also legislate to reduce pay inequality by introducing an Excessive Pay Levy on companies with staff on very high pay. Positive action from Labour in comparison to a weak Tory fudge.”