New legislation recently came into force for UK-listed companies whose financial years begins on or after 1 January 2019 and who have more than 250 employees in the UK.
In a move designed to promote pay transparency, these companies must report on the difference in pay between their chief executives and their average UK employee. It means that for the first time ever, UK listed companies will have to disclose and justify this difference – known as ‘pay ratios’ – every year. Companies will therefore need to start reporting their pay ratios from 2020 onwards.
Who will be affected by pay ratio reporting?
All UK listed companies will be required to report their pay ratio if the average number of their UK employees is more than 250 in the relevant financial year. For these purposes, an employee includes anyone ‘employed under a contract of service by the company’. However, those who work wholly or mainly outside the UK are excluded.
For parent companies, the pay ratio information will relate to the group rather than each individual company and the average number of UK employees is to be calculated using the number of UK employees in the group.
What information will have to be published?
Companies will be required to publish pay ratio information in the director’s remuneration report, specifically they must identify and compare CEO pay to the pay for employees on the 25th, 50th and 75th quartile of pay in their organisation. Average pay data can be taken from the data generated as part of the company’s annual gender pay gap report and the CEO pay data must be the ‘single figure’ the company already publishes in its annual report.
In addition to the pay ratio information, companies will be compelled to “justify” their CEO salary, as well as reporting on how their directors take employee and other stake holder interests into account. Specifically, the directors’ report for the financial year will need to contain a statement describing the action that has been taken during that year to:
What to do now?
Many organisations underestimate the amount of work required to report on their gender pay gap data and now in their pay ratio data, so if your organisation is likely to be caught by these new requirements it is sensible to prepare early for the change. The amount of work may be more or less difficult depending on the make-up of your workforce, your method of remuneration and the payroll system in place.In particular, affected employers should: