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Executive pay gap rules now in force

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Under regulations which came into force on 1 January 2019, UK-listed companies with more than 250 UK employees must now publish certain executive pay data in their annual reports.

The new regulations are part of the government’s efforts to improve transparency and accountability in corporate governance, and are a response to criticism that companies should justify executive salaries.

Quoted companies with more than 250 UK employees must provide the following in their directors’ remuneration report:

  • the ratio of their CEO’s total remuneration to the median (50th), 25th and 75th percentile full-time equivalent remuneration of their UK employees; and
  • supporting information, including the reasons for changes in ratios from year to year and, in the case of the median ratio, whether, and if so how, the company believes this ratio is consistent with the company’s wider policies on employee pay, reward and progression.

All companies subject to the new regulations are also required to illustrate in the directors’ remuneration report how the growth in the company’s future share price impacts executive pay, and to provide a summary of any discretion that has been exercised on executive remuneration outcomes reported that year in respect of share price appreciation or depreciation during the relevant performance periods.

The new requirements will apply for annual reports produced for financial years starting on or after 1 January 2019. The requirement for companies to illustrate the impact of share price increases will apply to all new remuneration policies introduced on or after 1 January 2019.

Companies affected by the new regulations should ensure that they fully understand what is required of the new regulations, and should begin the process of identifying the data that will be needed to provide the information required by the regulations. It will also be important to consider how the information will be explained and communicated by the business, both externally and to the workforce.