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New pay ratio reporting rules: success for High Pay Centre campaign

New rules requiring companies to disclose the gap between their CEO's pay and that of their average worker have been published for Parliamentary approval

After a long campaign by organisations including the High Pay Centre, the Government has published proposals on pay ratio reporting for Parliamentary approval. The new rules will require companies to disclose the total pay of the Chief Executive compared to the median pay for their UK employees, as well as pay at the 25th and 75th percentile of their UK employee populations (ie the pay thresholds for the top and bottom quarter of earners at the company).

HPC has been a long-standing advocate of transparency on pay gaps, with our 2015 publication 'Pay Ratios: Just do it' providing oe of the most detailed arguments for compulsory pay ratio disclosure.

The new requirements are designed to address the inequality that has emerged between top executives and the wider workforce in recent decades (our research suggests that the CEOs of the UK's biggest companies have increased from 10 or 20 times the average worker in the early 1980s to 45 times in the late 1990s to 120 times today - over the same period the share of total incomes accruing to the richest 1% of the population increased from 6% to 14%).

Public pay ratios will create pressure on companies to close the gap. They will also provide low-paid workers and their trade unions with information that they can use to support their argument for pay increases - when it becomes apparent what executives or the top quarter of earners at a company are earning, it is easier to identify the potential to redistribute pay more evenly. The ratios could also spark campaigns such as the successful 'Living Wage' movement designed to address poverty pay. The Government could also incorporate considerations relating to pay ratios into its procurement procedures or the tax system.

Despite this, however, it would be highly naive to expect the disclosure of this information alone to prompt a fairer approach to pay. The fundamental problem of companies being run for disengaged, short-term shareholders with too little voice for other stakeholders in corporate governance structures remains. Highlighting the weaknesses of this system and identifying alternatives will be a key priority for the High Pay Centre over the coming months, alongside scrutiny of the pay ratios as they are published. Under the current timeframe, the requirements will come into force for reports for financial years beginning on or after January 1 2019, meaning that the first mandatory disclosures wil be in 2020 (because financial reports are published after the year is complete). However, it may be that some companies choose to produce disclosures before then in anticipation of the new regulatios.

Posted on 11 June 2018

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