Executive pay ratio reporting on the way

UK quoted companies with more than 250 employees will need to publish the pay ratio between their Chief Executive Officer and "average" employees when new legislation comes into force in January 2019. The new executive pay ratio reporting rules are part of a package of reforms to corporate governance and to build a clearer picture of executive pay over time.

​To calculate the ratio, the total remuneration of the director undertaking the role of the CEO and the UK employee full-time equivalent pay and benefits are to be used.

As well as their pay ratio, companies must publish supporting information in Director’s reports, including the methodology they have used to calculate the ratio and the reasons for any changes year on year. This will take effect from the publication of their 2019 annual reports in early 2020.

There will be three ways of calculating the figures and companies can choose their preferred methodology. As with gender pay reporting, the narrative behind the figures will be important, so we expect companies to calculate their 2018 figures so that they can show trends when they have to report – and some may voluntarily disclose their figures before the legislation takes effect. ​

In addition to the pay ratio information, if it is not the first financial year in which the threshold number of UK employees has been reached, the Directors’ report will have to contain a statement describing what action the company has taken to introduce, maintain or develop arrangements aimed at:

• providing employees with information on matters of concern to them as employees and of the financial and economic factors affecting the performance of the company.
• consulting employees or their representatives on a regular basis so that the views of employees can be taken into account in making decisions which are likely to affect their interests
• encouraging the involvement of employees in the company’s performance through an employees’ share scheme or by some other means.

You can read full details of the legislation here.