Under government reforms to boardroom accountability all listed companies will have to publish pay ratios between chief executives and their average UK worker.
The government has announced that the new laws requiring all listed companies to publicly explain how their directors take employees’ and shareholders’ interests into account will be introduced in the coming months. Around 900 listed companies must annually publish and justify the pay ratio between CEOs and their average UK worker.
The Financial Reporting Council, which sets standards of governance through the UK Corporate Governance Code, will be asked to include a new requirement in the code to ensure employees’ interests are better represented at board level.
Under the code’s 'comply or explain' basis firms would have to assign a non-executive director to represent employees, create an employee advisory council, or nominate a director from the workforce.
Business, energy and industrial strategy secretary Greg Clark said that these reforms will ensure Britain's reputation as a transparent business environment will continue.
“We have maintained such a reputation by keeping our corporate governance framework under review,” he said. “[These] reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders.”
Stefan Stern, director of think tank the High Pay Centre, said the move was a “step in the right direction".
"We want investors and boards to ?have a more constructive and more thoughtful conversation on executive pay, and this sort of public disclosure should help,” he said. “This is a step in the right direction; providing greater transparency and focusing the public’s attention on those companies who ignore the concerns of their shareholders.”
Paul Drechsler, president of the CBI, explained the importance of good corporate governance. “We know that how companies act and behave determines the way people think about business,” he said. “Good corporate governance is an essential ingredient of business performance and the bedrock of trust between business and society.
“The CBI is very clear that the unacceptable behaviour of a few firms does not reflect the high standards and responsible behaviour of the vast majority of companies.”
