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Are the new disclosure rules on pay ratios sufficient to combat excessive pay disparity?

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On 1 January 2019, regulations came into force requiring UK-listed companies with more than 250 employees to publish certain information, including the difference between the salary of their chief executive and that of their average UK worker (their “pay ratios”) starting in 2020. You can read our previous blog on the rules themselves here.

However, questions are already being raised as to whether the new pay rules go far enough in tackling pay disparity. A recent YouGov poll commissioned by the Association of Accounting Technicians (AAT) has surveyed MPs and found that the vast majority of those who participated do not think so. The poll reveals that 69% of the 101 MPs who responded believe that “much more needs to be done” while a further 23% “strongly agreed” that there should be stricter requirements on employers to break down their pay.

What else can or should be done to tighten the existing regulations around pay ratio reporting to improve corporate governance in the UK? Phil Hall, AAT Head of Public Affairs & Public Policy, argues that “simply reporting on a problem, whilst helping to shine a light on issues, is very different from resolving those issues.”

In Mr Hall’s view, “companies should be compelled to publish action plans for addressing pay disparities rather than the current voluntary system; there should be much clearer and tougher sanctions for non-compliance.” Further, he calls for the number of companies targeted to be increased: “given companies employing more than 250 employees account for a mere 1% of UK businesses, reducing the reporting thresholds to companies employing more than 50 members of staff would have a much bigger impact on tackling divisive pay issues across the country.”

The reporting rules are part of the government’s package of reforms which, they say, aim to ensure that the UK’s largest companies are more transparent and accountable to both employees and shareholders. However, the question of whether corporate governance duties (and regulation) should stop at being “transparent” and “accountable” or ought to go substantively further remains a subject of debate.