Lawmakers in the United Kingdom's Department for Business, Energy, and Industrial Strategy (BEIS) are set to unveil a package of reforms "which will hold big businesses to account for the salaries they pay, while giving employees a greater voice in the boardroom and will require a pay ratio disclosure - a first for UK-listed companies. Specifically, the legislation will require all public companies with more than 250 employees in the United Kingdom to publish - and justify - the gap between CEO pay and employee pay.
The legislation was supposed to be shown to Parliament on Monday June 11, but the text has yet to be made public. According to BEIS, the legislation will apply to UK-listed companies with more than 250 employees and will require companies "to justify their chief executives' salaries and reveal the gap to their average UK worker". In addition to pay ratios, the law will also:
- Require listed companies to show what effect an increase in share price will have on executive pay and inform shareholders when voting on long-term incentive plans, expanding required pay disclosures.
- Require large companies to report on how directors take employee and other stakeholder interests into account.
- Require large private companies to report on "responsible business arrangements.
The legislation is aimed at correcting "concerns that some chief executives have been receiving salaries that are out-of-step with company performance" and will make good on campaign promises by Prime Minister Theresa May to reign in executive compensation. In the government's press release, the If approved by Parliament, the regulations will come into effect on January 1, 2019 with the first pay ratio disclosures coming in 2020.