Every listed UK firm will be required to publish the pay-difference ratio between its highest- and lowest-paid members of staff, under government plans unveiled on 10 June. [1]
Due to be put before Parliament today (11 June), the new proposals – which form part of the UK’s Industrial Strategy – would also require large firms to:
- report on how their directors take employee and other stakeholder interests into account;
- report on their responsible business arrangements, and
- show what effect an increase in share prices will have on executive pay, to inform shareholders when voting on long-term incentive plans.
The legislation arrives in the wake of widespread concerns that some chief executives are receiving salaries that are out-of-step with company performance.
Business secretary Greg Clark said: “One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business. Most of the UK’s largest companies get their business practices right but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance.”
He added: “Requiring large companies to publish their pay gaps will build on that reputation by improving transparency and boosting accountability at the highest levels, while helping build a fairer economy that works for everyone.”
High Pay Centre director Luke Hildyard said: “Pay ratios provide an insight into the culture and employment practices of major companies that is useful to investors, workers and wider society alike. This is a welcome move that will greatly improve public understanding of the pay gap between those at the top, and low and middle-income earners.”
How will these measures affect the debate around glaring pay disparities?
The Institute of Leadership & Management's head of research, policy and standards Kate Cooper says: “Whenever we’ve researched trust, we’ve found that one of its greatest contributing factors is openness. And in the context of pay ratio’s openness would include transparency about what everyone is being paid. I think we often assume that because these details are not published, they’re somehow not known within organisations. The finance function, for example, is very close indeed to the relevant figures. So unless the information is treated as strictly top secret, there will be some background-noise awareness of what people are paid. If the details are only partially known, staff will join the dots themselves.”
As such, Cooper notes: “If you publish the details, you automatically take the issue out of the field of rumour. Not only does that contribute to a climate of openness – it provides a basis for honest conversations about the ratio between the lowest- and highest-paid salaries. That should prompt leadership figures to reflect on the figures and think, ‘Am I worth ‘X’ times more than the lowest-paid member of staff?’ And, more importantly, ‘What is the contribution I make that justifies my higher rate of pay?’ That will go all the way through the organisation – it’s not just about the lowest versus the highest, but about noticeable, and perhaps egregious, gaps between any two levels or departments.”
She adds: “Openness is really important if you want to create trust. Once the information is out there, it paves the way for franker conversations about the relative efforts that workers are putting into the broader performance of their organisations. These legislative proposals – especially the clarity around how much people earn if they hold shares, and the often complex reward packages that members of senior teams have in place – will make a positive contribution to that transparency.”
For further thoughts and insights on building trust, check out these learning resources from the Institute
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