New requirement to report on executive pay to be introduced

The government has recently confirmed proposals for reforming corporate governance in the area of employment. The latest proposals do not contain as many requirements as were previously set out by the Prime Minister but are another step towards increasing public awareness of how large companies operate.

A new law will be introduced to require listed companies to annually publish and explain the pay ratio between CEOs and an average UK worker for that company. In similar fashion to the new gender pay gap reporting laws, this law will be aimed at increasing transparency and using public perception as a tool to require companies to fully explain and justify the payments for senior posts.

As previously announced by the Prime Minister, there are some steps being taken to ensure employees are represented at board level. For listed companies, a new requirement will be introduced for businesses to either assign a non-executive director to represent employees, create an advisory council for employees or nominate a director directly from the workforce.

Alongside these initiatives, the government is also planning on introducing new requirements for large private companies. These include:

• Publicly reporting an explanation of how directors take employee and shareholder interests into account
• Making responsible business arrangements public
• Introducing a new voluntary set of corporate governance principles that companies can choose to implement

The first meeting of the newly created Business Diversity and Inclusion Group in September will also be used to discuss the creation of requirements for larger companies to increase transparency around their diversity policies and inclusion in the workplace.

Transparency requirements are becoming an attractive proposal for the government. Already, many employers are fearing their exposure to tribunal claims regarding their public reports under gender pay gap laws and there continues to be public interest, and uproar, regarding pay gaps that are being disclosed by large companies.

These new reporting laws are intended to be introduced with effect from June 2018. With the government already announced they will strengthen gender pay gap reporting laws, it may only be a matter of time before executive pay reporting is further extended to encompass large private companies and more transparency requirements are introduced.